Recourse vs Non-Recourse DSCR Loans: What's the Difference?
A recourse DSCR loan lets the lender pursue the borrower's other assets if the property's sale or foreclosure doesn't cover the full debt. A non-recourse loan limits the lender's recovery to the property itself — but nearly every non-recourse loan still carries carve-outs (often called "bad boy" carve-outs) for specific bad acts like fraud, where personal liability can attach anyway.
NightYield Editorial
STR-DSCR research & underwriting desk
Published 2026-07-23
What recourse actually means in a default
If a loan is recourse and the property is foreclosed or sold for less than the outstanding balance, the lender can pursue the borrower personally for the shortfall — going after other assets, income, or through a deficiency judgment where state law allows it. The borrower's liability isn't capped at the value of the property.
Non-recourse flips that: the lender's remedy in a default is limited to the collateral itself. If the property doesn't cover the debt, that shortfall is generally the lender's loss, not a debt the borrower personally owes beyond the property.
Why 'non-recourse' rarely means zero personal exposure
Almost every non-recourse loan includes carve-out provisions that convert specific bad acts back into personal liability — commonly covering things like fraud or material misrepresentation in the loan application, waste or intentional damage to the property, unauthorized transfer of the property, or misapplication of insurance or condemnation proceeds. These are standard, not exotic, and they exist precisely so "non-recourse" doesn't function as a shield for bad-faith behavior.
| Recourse | Non-recourse | |
|---|---|---|
| Lender's remedy after shortfall | Can pursue borrower personally | Generally limited to the property |
| Personal assets at risk in an honest default? | Yes | Generally no |
| Carve-outs for fraud/bad acts? | N/A — already fully personal | Yes — standard in nearly all non-recourse loans |
| Typical pricing | Often somewhat lower | Can carry a premium for the reduced lender protection |
What to check on your specific note
"Non-recourse" is a term worth reading in the actual loan documents rather than assuming from a lender's marketing language — the specific carve-out list, and whether any of them are broader than the standard bad-acts categories, is where the real exposure sits.
- Confirm in writing whether the specific loan product is recourse, non-recourse, or a partial-recourse structure (sometimes recourse burns off after a seasoning period).
- If non-recourse, read the actual carve-out list — don't assume it matches the standard categories without checking.
- Weigh any pricing difference against the value of the liability protection for your specific risk tolerance.
- Consider how vesting (LLC vs. personal name) interacts with recourse — they're related but separate layers of liability exposure.
Key takeaways
- Recourse loans let the lender pursue the borrower personally for any shortfall after default.
- Non-recourse loans generally limit the lender's remedy to the property itself.
- Nearly all non-recourse loans carry carve-outs for fraud and other bad acts, restoring personal liability in those specific scenarios.
- Read the actual carve-out language in the note rather than relying on the recourse/non-recourse label alone.