DEFINITION of Non-Recourse Expense
Non-recourse expense is an accounting term that can refer to the cost of absorbing losses on defaulted non-recourse debt. In other words, when a borrower fails to repay a non-recourse loan, the lender's only possible recourse is to seize any pledged collateral and sell it. Due to the non-recourse status of the loan, the lender cannot go after any of the borrower's other assets to cover additional amounts that are not recovered through sale of pledged assets. The loss that results between what the asset is sold for and what is actually owed is written off as a non-recourse expense, but there can be variations in the name of this line item.
BREAKING DOWN Non-Recourse Expense
While non-recourse expenses are most often associated with certain types of home mortgages, they are also found on the books of small businesses. Also, sometimes investors will take out non-recourse loans to fund IRA investments, which are secured by their property. Should the borrower default, the lender will seize the property and try to recover the loan amount, and any losses will be non-recourse expenses.