Glossary › Glossary
A recourse loan means the borrower is personally liable for the debt. If the property is foreclosed and sold for less than the outstanding loan balance, the lender can pursue the borrower's personal assets — bank accounts, other properties, income — to recover the shortfall. A non-recourse loan limits the lender's recovery to the property itself. Hard money loans are almost always recourse. Non-recourse hard money is available but uncommon and typically reserved for experienced borrowers.
In a recourse loan, the borrower provides a personal guarantee. If the deal goes wrong:
This means the lender can go after the borrower's savings, other real estate, business assets, or wages to recover what the property sale did not cover.
The personal guarantee is what gives hard money lenders the confidence to move fast without the extensive due diligence conventional lenders do. They know the borrower has personal skin in the game.
In a non-recourse loan, the lender's only remedy in a default is the property itself. The lender can foreclose and sell the property, but cannot pursue the borrower for any deficiency between the sale price and the loan balance.
Non-recourse is significantly better for the borrower — it limits downside to the equity invested in the deal, not personal assets. If the deal goes catastrophically wrong, the borrower loses the investment but keeps everything else.
Hard money lenders move fast, do minimal documentation, and make decisions in days. The personal guarantee is a critical piece of their risk structure:
A lender who moves at hard money speed without a personal guarantee is taking substantially more risk. Non-recourse pricing reflects that — higher rates, lower LTC, more restrictive programs.
Non-recourse hard money loans exist, particularly in:
Large commercial deals: Some commercial bridge lenders will do non-recourse on loans above a certain size ($2M+) for experienced operators with strong deals and meaningful equity.
Certain DSCR programs: Some institutional DSCR lenders offer non-recourse for experienced investors with 10+ units of rental experience and strong financial profiles.
Specific fund structures: Some debt funds offer non-recourse to protect borrowers who are setting up specific legal structures (such as self-directed IRA investing where personal recourse creates regulatory complications).
In all cases, non-recourse hard money comes with tighter qualification requirements, lower LTC/LTV, and typically higher rates than comparable recourse programs.
Non-recourse loans almost always include carve-outs that convert the loan to recourse for specific borrower actions:
These are called "bad boy" carve-outs. They mean the loan is non-recourse unless the borrower does something fraudulent or deliberately harmful. If the deal simply goes bad due to market conditions or renovation cost overruns, the lender is limited to the property. If the borrower committed fraud, all bets are off.
Most hard money borrowers should assume their loan is recourse and plan accordingly:
For most fix and flip investors, recourse is acceptable because the deal economics — if properly underwritten — produce enough equity to repay the loan from sale proceeds. Recourse becomes a problem when deals are severely underpriced or when renovation costs blow the budget and the property cannot cover the loan.
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