The lender can pursue your personal assets if the property doesn't cover the loan.
A recourse loan is one where the lender can pursue the borrower's personal assets — beyond the collateral property — to recover any deficiency in case of default. Most residential, small-balance commercial, hard money, and DSCR loans are recourse. The borrower typically signs a personal guarantee making the recourse explicit.
Recourse is the default lending structure in most of the real estate market. When a lender extends a smaller-balance loan (under $5M), to a single borrower or LLC without significant capital backing, the lender needs more than just the property as collateral — they need the borrower's personal commitment to pay back the loan no matter what. That commitment is the recourse provision and the personal guarantee that documents it.
For investors, recourse means real downside exposure. If the property fails and the foreclosure doesn't cover the loan, the lender can pursue: other real estate, business interests, savings and brokerage accounts, vehicles, and (in some states) primary residence equity. State law varies meaningfully — California is a "one-action" state that limits some pursuit; Texas and Florida have homestead exemptions; other states have fewer protections.
Recourse is often limited or partial rather than full. Limited recourse caps the borrower's exposure at a percentage of the loan (often 25–50%). Burn-off recourse reduces over time as the loan amortizes or as performance benchmarks are met. Springing recourse only triggers if specific bad-boy events occur (similar to non-recourse carve-outs). Sophisticated borrowers negotiate these structures aggressively on commercial deals.
The way to manage recourse exposure is portfolio diversification and entity structure. Use separate LLCs for each property to prevent cross-collateralization. Keep personal guarantees narrow when possible. On bigger deals, push for limited or burn-off recourse. And track total recourse exposure across your portfolio — your aggregate personal liability across multiple recourse loans is your true downside, and most investors don't track it carefully enough.
| Loan amount | $650,000 |
| Personal guarantee | Full recourse |
| Property value at default | $520,000 |
| Foreclosure costs | $32,000 |
| Net foreclosure proceeds | $488,000 |
| Deficiency | $162,000 |
| Borrower personal exposure | $162,000 + collection costs |
| At-risk assets | Savings, brokerage, other RE equity, vehicles |
The lender can pursue the borrower's personal assets — beyond the collateral property — for any deficiency in case of default. The opposite is non-recourse, which limits lender recovery to the property only.
No — institutional commercial loans (CMBS, agency, life company) on $5M+ deals are typically non-recourse. Smaller balance commercial, residential investment, hard money, and DSCR are typically recourse.
On larger commercial deals, yes — limited recourse, burn-off recourse, and springing recourse all reduce exposure. Smaller balance loans are typically full recourse with little room to negotiate.
The legal document where the borrower (and often spouse) personally promises to repay the loan if the property doesn't cover the balance. Personal guarantees document and enforce recourse.
Use separate LLCs to prevent cross-collateralization across properties. Negotiate limited recourse on bigger deals. Maintain personal liquidity outside of pledged assets. Track aggregate recourse exposure across your portfolio.
Matrix structures recourse, limited-recourse, and non-recourse loans based on size and sponsor. We help operators understand and limit downside exposure.
