WHAT IS 'Non-Recourse Sale'

Non-recourse sale refers to the sale of an asset in which the buyer assumes the risk that the asset may be defective. This often refers to the sale of an unpaid debt by a lender to a third party who can then attempt to profit by successfully collecting the remaining debt.

BREAKING DOWN 'Non-Recourse Sale'

A non-recourse sale is a transaction between a buyer and a seller where the buyer accepts liability resulting from a defect in the asset sold. The term is generally used to describe the terms of a loan agreement, but can also refer to a lender’s sale of bad debt to a third party, such as a debt collector. The third party purchases the debt at a significant discount to the face value of the debt, and is able to profit from the transaction if it can successfully collect on the debt. If unsuccessful, the third party cannot attempt to collect from the selling lender.

Non-recourse real estate sales

In real estate, recourse refers to the ability of a lender to seek repayment from a borrower after foreclosure. When a borrower fails to keep up with mortgage payments, the lender has the right to initiate foreclosure by taking control of the property. Often, then lender will then sell the property to recover the loan, but that sale may not fully cover the outstanding debt. The difference between the proceeds of a foreclosure sale and the outstanding debt is known as a deficiency balance. If the loan was closed in non-recourse state, the lender is not able to seek pursue the deficiency from the borrower. In a recourse state, the lender could seek final repayment through seizure of property or cash assets from the borrower. This distinction places additional risk on a lender in a non-recourse transaction.

Recourse laws vary from state to state, particularly with regard to the extent to which the holder of debt can pursue recovery from the borrower. One-action recourse states such as California allow the debtholder to make one attempt, generally a foreclosure or lawsuit. Other states such as Florida have enacted statutes of limitations on collection efforts. These rules are designed to protect the borrower from harassment or aggressive collection actions. In some non-recourse states, only purchase-money loans are protected. Refinanced mortgages, or home equity lines of credit (HELOCs), may be subject to recourse.

Non-recourse loans are more attractive to borrowers, but tend to have higher interest rates to compensate for the risk assumed by the lender.

  1. Full Recourse Debt

    Full recourse debt is a type of secured debt that gives the lender ...
  2. Recourse

    A recourse is a legal agreement which gives the lender the right ...
  3. Recourse Loan

    A recourse loan is a type of financing that allows a lender to ...
  4. Without Recourse

    Without recourse pertains to when the buyer of a promissory note ...
  5. Power of Sale

    Power of sale is a clause in a mortgage that gives the lender ...
  6. Involuntary Foreclosure

    An involuntary foreclosure occurs when a borrower defaults on ...
Related Articles
  1. Investing

    The 6 Phases Of A Foreclosure

    For many, foreclosure is still a real possibility. Make sure you're prepared and know the steps.
  2. Personal Finance

    Avoid Foreclosure: How To Handle An Underwater Mortgage

    Foreclosure is the biggest fear of any struggling homeowner. These tips just might save your credit rating.
  3. IPF - Mortgage

    Shopping for Mortgage Rates

    Are you planning on buying a home? Here is a step-by-step guide to find and lock in the best rate for a mortgage.
  4. Investing

    Commercial real estate loans

    Obtaining a commercial real estate loan is quite different from borrowing for residential real estate. Here's what to expect and how to get what you need.
  5. Investing

    How to Get the Money to Flip a House

    If you want to get into house flipping but don't have the cash to invest, read on for options.
  6. IPF - Mortgage

    How to Get the Best Mortgage Rate

    A crucial consideration as you shop mortgages is getting the best possible interest rate.
  7. IPF - Mortgage

    Understanding Home Equity Loans and Line of Credit

    Home equity loans and lines of credit can be an inexpensive way to tap the equity of your home or pay off debt. Learn if taking this risk is right for you.
  8. Personal Finance

    5 New Barriers to Getting a Mortgage

    New lending requirements have made it much tougher to get approved, and some common situations that may not have presented a problem for approval in the past, do now.
  9. Personal Finance

    Tips for Choosing the Best Online Mortgage Lender

    Finding the right online mortgage lender can be a tall task. Here's some help on how to avoid wasting your time.
  10. Personal Finance

    How Do Mortgage Lenders Get Paid and Make Money?

    When homebuyers educate themselves on how mortgage lenders get paid and make money, they are more likely to save thousands of dollars on their mortgages.
  1. What is the difference between a non-recourse loan and a recourse loan?

    The difference between recourse and non-recourse loans comes into play if the borrower defaults, the collateral is sold, ... Read Answer >>
  2. Does inflation favor lenders or borrowers?

    Find out under what circumstances inflation benefits borrowers more than lenders and in which situations inflation can be ... Read Answer >>
  3. What is the difference between secured and unsecured debts?

    Learn about the differences between secured and unsecured debt — and how banks buffer risks associated with each type of ... Read Answer >>
Trading Center