Recourse vs. non-recourse is one of the most important decisions in commercial mortgage financing — it determines whether you’re personally on the hook if the loan goes bad. The choice affects your rate, your LTV, your flexibility, and your personal risk exposure. This guide explains the difference, the trade-offs, and how to decide which structure is right for your commercial refinance.
What Is a Recourse Loan?
With a recourse loan, the lender can pursue the borrower’s personal assets — beyond just the collateral property — if the loan defaults and the property sale doesn’t cover the full debt. If you sign a recourse loan personally (or as a guarantor), your personal bank accounts, investments, other real estate, and future earnings are potentially at risk.
Most conventional bank loans, SBA loans, and many bridge loans are full-recourse. Lenders require personal guarantees from principals owning 20% or more of the borrowing entity.
What Is a Non-Recourse Loan?
With a non-recourse loan, the lender’s only remedy in case of default is to foreclose on the collateral property itself. The lender cannot pursue the borrower’s personal assets. If the property sells for less than the loan balance at foreclosure, the lender takes the loss (subject to certain exceptions called “bad boy carve-outs”).
CMBS loans, most agency loans (Fannie Mae, Freddie Mac), and many life company loans are non-recourse. This is a significant advantage for borrowers who want to limit personal liability.
The Quick Comparison
| Feature | Recourse | Non-Recourse |
|---|---|---|
| Personal Liability | Full personal guarantee required | Limited to the property (bad-boy carve-outs only) |
| Typical Rate | Lower (0.25-0.75% less) | Higher (lender takes more risk) |
| LTV | Up to 75-80% | Typically 65-75% |
| Flexibility | More flexible underwriting, easier to modify | Less flexible, rigid structures |
| Typical Lenders | Banks, SBA, some bridge/debt funds | CMBS, agency, life companies |
| Best For | Lower rate, higher LTV, relationship lender | Asset protection, estate planning, multi-property investors |
The “Bad Boy Carve-Outs” in Non-Recourse Loans
Non-recourse doesn’t mean zero personal risk. All non-recourse loans include “bad boy carve-outs” — specific actions that trigger full personal recourse. These typically include:
- Fraud or misrepresentation in the loan application or financials
- Bankruptcy filing by the borrower entity (voluntary or involuntary that’s collusive)
- Waste — allowing the property to deteriorate significantly
- Transfer of ownership without lender consent (due-on-sale clause)
- Junior liens placed on the property without lender approval
- Misappropriation of insurance proceeds or tenant deposits
Some non-recourse loans also include “springing recourse” provisions that trigger personal liability if the DSCR falls below a certain level for a sustained period.
When Non-Recourse Makes Sense
- Asset protection — You want to shield personal assets from commercial real estate risk
- Estate planning — Non-recourse loans simplify estate transitions (the property can be transferred to heirs without triggering due-on-sale)
- Multi-property investors — If you own multiple properties, non-recourse limits the domino effect of one property’s failure
- Institutional-quality properties — Stabilized, high-quality assets in strong markets qualify easily for non-recourse CMBS or life company financing
- Partnership / syndicated ownership — Non-recourse is typically required when multiple investors are involved
When Recourse Makes Sense
- Lower rate is the priority — Recourse loans typically carry rates 0.25-0.75% lower than non-recourse
- Higher LTV needed — Banks may go to 80% recourse vs 70% non-recourse
- Property doesn’t qualify for non-recourse — Properties with weak financials, high vacancy, or unique characteristics may not meet CMBS/life co standards
- You want flexibility — Bank loans can be modified, extended, or restructured; CMBS loans are notoriously rigid
- Relationship matters — If you value a long-term banking relationship for future needs
Hybrid Structures
Some lenders offer hybrid structures:
- Carve-back recourse — Non-recourse except the guarantor guarantees completion of any pending improvements
- Completion guarantee — Recourse until the property achieves stabilization, then converts to non-recourse
- Partial recourse — Limited guarantee capped at a percentage of the loan amount
- DSCR springing recourse — Non-recourse unless DSCR drops below a threshold
How RefiLoop Helps
Recourse vs. non-recourse is a decision with long-term legal and financial implications. RefiLoop helps you weigh the trade-offs based on your portfolio, risk tolerance, and long-term plans. We can secure both structures from our 7,000+ lender network so you can compare side by side: the recourse bank offer at a lower rate vs. the non-recourse CMBS offer at slightly higher rate but no personal liability.
Schedule a free 15-minute review and we’ll lay out both options for your deal.
Frequently Asked Questions
Can I convert a recourse loan to non-recourse later?
Not directly. You would need to refinance into a new non-recourse loan (typically CMBS or life company). The original recourse loan is paid off, and the new non-recourse loan takes its place.
Are CMBS loans always non-recourse?
Yes, CMBS loans are structured as non-recourse by design — the loan is sold to bond investors who rely solely on the property’s cash flow. However, the bad-boy carve-outs still apply.
Does non-recourse mean I can just walk away if the property loses value?
You can surrender the property through foreclosure or deed-in-lieu without personal liability (assuming no bad-boy triggers). But this damages your credit and ability to obtain future financing. Non-recourse is a safety net, not a strategy.
Will a recourse loan always have a lower rate?
Usually, but not always. The rate difference depends on the lender, property quality, and market conditions. In some cases, a CMBS non-recourse loan may price competitively with or below a bank recourse loan, especially for high-quality properties.
About David Greenbaum
David Greenbaum is a commercial mortgage broker and co-founder of RefiLoop. He specializes in helping commercial property owners refinance maturing loans between $200K and $15M across Texas, Florida, Georgia, North Carolina, Ohio, and other priority markets. With hands-on experience in commercial bridge loans, debt fund financing, and conventional CRE refinancing, David helps borrowers find the right capital source for their situation — not just the easiest one.