Non-recourse loan

1. A term used to refer to a loan in which the lender agrees to seek repayment of the loan solely from the collateral. If there is a deficiency after applying the collateral to repay the loan, there is no further recourse to the borrower/debtor. That, at least, is the theory of a non-recourse loan. In practice, however, lenders often require that a borrower accept some limited form of recourse--for example, in the case of fraud or misrepresentation by the borrower/debtor. This issue is discussed in the following case: Blue Hills Office Park, LLC v. J.P. Morgan Chase Bank, 477 F. Supp. 2d 366 (D. Mass. 2007). Non-recourse lending is fairly common when the collateral is a mortgage on commercial real estate. It is less common when the collateral consists of personal property assets. However, the true sale of receivables to a factor is (or can be) a form of non-recourse credit when the sale is non-recourse to the factor. In such an arrangment, the factor agrees to look solely to the purchased receivables for the return of its purchase price (plus a return in the nature of interest). If the receivables prove to be uncollectable, the factor may not look to the seller of the receivables to recover any portion of the purchase price paid for the receivables.

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