Real estate loans are the most common type of nonrecourse loan. Recourse debt obligates the borrower to pay the loan whereas in nonrecourse debt the lender agrees to look only to the collateral for the ultimate repayment of the loan.
Because the real property is frequently the only asset of the borrower entity, nonrecourse lending typically does involve some limited recourse, often known as “springing recourse guaranty.” It is a guaranty by the principals for damage to collateral caused by fraud, waste, misappropriation and non-permitted transfers of property. It may include an environmental guaranty or that may be separate.