What is full recourse?
Full recourse is a state in which a debt obligation is owed regardless of the borrower’s personal and financial situation. With full recourse, the lender can take whatever assets it wants to satisfy the borrower’s debt. Many loans offer the lender some kind of recourse in case a borrower defaults, but with full recourse the lender has virtually unlimited options for reclaiming funds.
A lender’s recourse is the degree to which it can recoup its losses by possessing a borrower’s assets. Although many loans are secured by collateral, the collateral may not enough to satisfy the borrower’s debt, and with full recourse the lender can seize assets to make up the difference.
When the borrower defaults, the lender may be forced to sell the home in a foreclosure, but if the property has negative equity then the borrower will lose money. A full-recourse loan provides the lender with the ability to get back all funds it provided to the borrower. The borrower will be unable to get out of the loan unless it is paid in full.
By comparison, a nonrecourse loan could leave the lender with no means to recoup its losses if the collateral loses value.
Full recourse example
Jamie purchases a home with a full recourse mortgage. She makes payments on it until she is unable to do so. She loses her job, which leads to falling behind on the debt. Over a few months, the property goes into foreclosure. However, Jamie’s home was only worth $150,000 on the real estate market. She owes $175,000 on the loan. The lender forces foreclosure, but then also sues her for the remaining $25,000 owed on the loan.