One of the first questions on any commercial loan is whether it's recourse or non-recourse — that is, what the lender can come after if the deal goes wrong. It shapes your risk, and often your rate.
Recourse: your guarantee is on the line
With a recourse loan, you personally guarantee the debt. If the property is foreclosed and sells for less than the balance, the lender can pursue your other assets for the shortfall. Most bank and bridge loans are recourse — it's why lenders scrutinize your liquidity and net worth, not just the building.
Non-recourse: the property is the remedy
With a non-recourse loan, the lender's remedy on default is the property itself, not your personal assets. It's common on larger, stabilized deals and agency (Fannie/Freddie) and CMBS loans. You typically pay for that protection with somewhat tighter underwriting or terms.
The 'bad-boy' carve-outs
Non-recourse is rarely absolute. Standard carve-outs — often called 'bad-boy' guarantees — snap the loan back to full recourse if the borrower does something egregious: fraud, misappropriating rents or insurance proceeds, filing a bad-faith bankruptcy, or transferring the property without consent. Read them; they're the real boundary of your protection.
Which should you want?
Non-recourse limits your downside, but it's not available on every deal or property type, and it can come with trade-offs. Recourse may unlock better pricing or a loan you couldn't otherwise get. Weigh it against your risk tolerance and the strength of the deal — and compare how different lenders structure it.