Recourse vs. Non-Recourse
A recourse loan lets the lender pursue the borrower's personal assets if the property's value doesn't cover the debt after default. A non-recourse loan limits the lender to the collateral itself — with standard 'bad-boy' carve-outs that restore personal liability for fraud, misappropriation, or unauthorized transfers.
Banks typically require full or partial recourse, especially on construction and smaller balance loans. CMBS, life company, and agency loans are typically non-recourse.
Carve-out guarantees are not a formality: actions like filing bankruptcy to block foreclosure or diverting rents can convert a non-recourse loan into a personal obligation. Sponsors negotiate carve-out language carefully.