Recourse vs non-recourse: the short answer
A recourse loan lets the lender come after you personally if the property does not cover the debt. A non-recourse loan limits the lender to the property itself, except in specific situations written into the loan, called carve-outs. In practice almost every commercial loan sits somewhere between the two, and the guarantee behind the loan matters more than the label on the quote.
The comparison everyone makes
Put two quotes side by side on a $10 million loan: a recourse bank loan, and a non-recourse loan priced 25 basis points higher. The rate-only view says the bank loan saves about $25,000 a year. The label-only view says the non-recourse loan protects everything else you own.
Both views skip the same document. Non-recourse loans are standard on CMBS, Fannie Mae and Freddie Mac multifamily, most life company loans and HUD programs. On 1 October, for example, Dwight Capital closed a $47 million HUD 221(d)(4) construction loan for a 279-unit project outside Houston that it described as nonrecourse (Commercial Observer, 1 Oct 2026). Loans like that still come with a guarantor, and the guarantor signs a carve-out guaranty.
What the carve-out guaranty actually says
The non-recourse carve-out guaranty, often called the "bad boy" guaranty, makes a guarantor personally liable if specific things happen. There are two kinds, and they produce very different numbers.
Loss carve-outs (you pay the lender's actual losses from the event):
- Fraud or intentional misrepresentation
- Misapplication of rents, insurance proceeds or security deposits
- Waste, or failure to pay taxes and insurance when the property has the cash
- Environmental liabilities
Springing full recourse (the whole loan becomes your personal debt):
- A voluntary bankruptcy filing, or collusion in an involuntary one
- Transferring the property or taking on other debt without consent
- Breaching the single-purpose entity rules in a way that leads to consolidation
The worked example: one shortfall, five outcomes
The example below is illustrative. The loan, the sale price and the carve-out amounts are assumptions chosen to show how the structures work, not a case.
The loan: $10,000,000. The property goes into default and sells in foreclosure for $7,000,000, leaving a $3,000,000 shortfall before costs.
| Structure | What triggers personal liability | What the guarantor owes |
|---|---|---|
| Full recourse (bank loan) | The default itself | $3,000,000 |
| Partial recourse, capped at 25% | The default itself, up to the cap | $2,500,000 |
| Non-recourse, no carve-out event | Nothing | $0 |
| Non-recourse, loss carve-out ($400,000 of rents collected during the default and not paid to the lender) | The misapplied rents | $400,000 |
| Non-recourse, springing trigger (an unapproved second loan on the property) | The whole loan springs to recourse | $3,000,000 |
Three of those five rows are "non-recourse." The guarantor's exposure across them runs from zero to the full shortfall. The 25 basis points on the quote, about $25,000 a year, is small next to that range.
Recourse vs non-recourse at a glance
| Recourse | Non-recourse | |
|---|---|---|
| Lender's remedy on default | The property and the guarantor's assets | The property, except for carve-outs |
| Typical lenders | Banks, credit unions, construction and bridge lenders | CMBS, Fannie Mae, Freddie Mac, life companies, HUD |
| Leverage and pricing | Can be higher leverage or lower rate for strong guarantors | Often more conservative sizing |
| Guarantor review | Net worth and liquidity tested, sometimes heavily | Net worth and liquidity still tested for the carve-out guaranty |
| Flexibility | Often more flexible on prepayment and structure | Usually stricter: prepayment restrictions, reserves, cash management |
| Personal exposure | Up to the whole loan | Carve-out events only, unless one springs |
Non-recourse also tends to travel with stricter prepayment terms. We show what that costs if rates fall in the prepayment clause decides what your loan costs.
The middle ground lenders actually offer
- Partial recourse: a guarantee capped at a percentage of the loan, say 25 or 50 percent.
- Burn-off recourse: the guarantee steps down or disappears once the property hits milestones such as a DSCR or occupancy level for a set period.
- Completion and carry guarantees: on construction loans, a guarantee that the project gets built and that interest and operating shortfalls are covered until stabilization.
- Interest and carry guarantees on bridge loans during lease-up.
Expect more of this while rates are high. At a Bisnow capital markets event on 1 October, Brookfield said interest reserves and equity guarantees will come back into loan structures as the market reprices (Bisnow, 1 Oct 2026).
What to negotiate before you sign
- Narrow the springing triggers. Ask for "voluntary" bankruptcy only, materiality thresholds on transfers, and cure periods on single-purpose entity breaches.
- Turn full-loan carve-outs into loss carve-outs where you can. Losses actually caused is a very different number from the full balance.
- Ask for a burn-off. If the risk is lease-up, tie the guarantee to it and let it fall away when the property stabilizes.
- Cap partial recourse in dollars, not just percent, and exclude it from future advances.
- Check what the guarantor has to maintain. Net worth and liquidity covenants can bind long after closing.
- Compare structures on the same deal. A recourse bank quote and a non-recourse agency quote can only be weighed properly in one view.
How the loan is sized matters as much as who guarantees it. See DSCR is almost never the number that sizes your loan, and check the current commercial loan rates before you compare pricing. Banks and credit unions lean toward recourse; agencies, CMBS and life companies lean toward non-recourse; debt funds and private lenders vary deal by deal. Our guide to private lending explains how those lenders think, and you can find lenders by criteria on Finance Lobby.
The question to ask instead
Not "is it recourse or non-recourse?" Ask: "which events make this loan personal, and for how much?" The label tells you the default case. The carve-outs tell you the case you will actually be in if something goes wrong.
On Finance Lobby you underwrite the deal, build the deal memo, and send it to lenders whose criteria fit, so recourse and non-recourse quotes on the same deal come back side by side with rate, proceeds and structure.
Start your deal and compare structures
FAQ
What is the difference between recourse and non-recourse loans? A recourse loan lets the lender pursue the borrower or guarantor personally if the property does not cover the debt. A non-recourse loan limits the lender to the property, except for specific carve-out events in the loan documents.
What are bad boy carve-outs? They are provisions in a non-recourse loan that make a guarantor personally liable if certain acts occur, such as fraud, misapplying rents, an unauthorized transfer or a voluntary bankruptcy. Some create liability for losses; others make the entire loan recourse.
What is springing recourse? A provision that converts a non-recourse loan into full recourse if a specified event occurs, most commonly a voluntary bankruptcy filing or an unauthorized transfer of the property or additional debt.
Which commercial loans are non-recourse? CMBS loans, Fannie Mae and Freddie Mac multifamily loans, most life insurance company loans and HUD programs are typically non-recourse with carve-outs. Bank, construction and bridge loans are more often recourse or partial recourse.
Is a non-recourse loan more expensive? Not necessarily. Pricing depends on the lender type, leverage and property. Non-recourse loans often come with more conservative sizing and stricter prepayment and reserve terms rather than a higher rate.