Recourse or Nonrecourse?

[Tax Prep by Deb]

Does anyone know how to tell by looking at loan doc's whether a mortgage loan is recourse or nonrecourse? I have looked and either I am missing it or just not looking for the right words.

Deb!

[JRS]

Don't take this as "gospel", but this is what I have found:

In my experience, which is limited, you won't find it in the loan docs. You have to find out what the "collateral" is.

If the loan is secured "only" by the property it is nonrecourse. If a refi is taken out for more than the balance of the mortgage, the loan becomes recourse (from the research I have done).

From Wikipedia:

"A nonrecourse debt or non-recourse debt or nonrecourse loan is a secured loan (debt) that is secured by a pledge of collateral, typically real property, but for which the borrower is not personally liable. If the borrower defaults, the lender/issuer can seize the collateral, but the lender's recovery is limited to the collateral. If the property is insufficient to cover the outstanding loan balance (for example, if real estate prices have dropped), the lender is simply paid out the difference. Thus, non-recourse debt is typically limited to 80% or 90% loan-to-value ratios, so that the property itself provides "overcollateralization" of the loan. The purpose of non-recourse debt is to require lenders to underwrite their loans on a sustainable and prudent basis since the lender is in the first-loss position with these loans, not the borrower."