Recourse vs. Non-Recourse

Non-recourse debt limits a lender's remedy on default to the pledged property itself, without personal liability for the borrower's other assets, while recourse debt allows the lender to pursue the borrower personally for any deficiency. Most institutional, agency, and CMBS commercial loans are non-recourse but include 'bad boy' carve-outs that trigger personal liability for fraud, waste, or bankruptcy filing.

The recourse/non-recourse distinction is one of the most consequential terms in any CRE loan, because it defines the outer limit of the borrower's personal financial exposure if a deal fails. Non-recourse structures are the norm for institutional-grade permanent, agency, and CMBS loans on stabilized assets, reflecting the lender's confidence in the underlying real estate as sufficient collateral without needing a personal balance sheet backstop.

Even 'non-recourse' loans are rarely absolute: nearly all include carve-outs (often called 'bad boy' guaranties) that convert to full or partial recourse if the borrower commits fraud, misapplies insurance or condemnation proceeds, commits waste, or files bankruptcy to delay foreclosure. Borrowers should read carve-out language closely, since some lenders draft broader triggers than others.

Bridge, construction, and smaller commercial loans are far more likely to require full or partial recourse (or at minimum a personal guaranty) given the higher execution risk and, often, a less institutional, more relationship-based lending relationship — sponsors should expect to negotiate recourse terms actively rather than assume non-recourse is the default outside of stabilized permanent financing.

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