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Non-recourse debt limits a lender as to what it can and cannot pursue for collateral.

In a non-recourse loan, the borrower usually puts up property as the collateral. This type of loan favors the borrower, who does not face personal liability for the loan. The lender can only retrieve the collateral in the event the borrower defaults and does not repay the full amount owed.

For example, if a borrower defaults on her home loan, the bank may only be able to foreclose on the property. The bank cannot collect other assets from the borrower to repay the loan.

Recourse debt enables the lender to take other assets from the borrower besides the collateral if the borrower defaults. The lender can garnish wages or take money from other accounts to recoup what is owed.

Borrowers that are most likely to secure a non-recourse loan typically have very high credit scores and a choice of prospective lenders. Some borrowers may accept a recourse debt if it means a lower interest rate or more favorable terms.

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