Full Recourse Debt

Full recourse debt is a type of secured debt that gives the lender rights to assets beyond just collateral to cover full repayment of a borrower’s loan obligations. Full recourse loans give lenders assurance of 100% repayment.

Full recourse debt can be compared to non-recourse debt. Both are types of debt that are associated with secured loans. (See also: What is the difference between a non-recourse loan and a recourse loan?)

When a borrower enters into a secured loan contract it may be either full recourse or non-recourse. With full recourse the provisions of the loan give the lender rights to additional assets beyond just the specified collateral to cover full repayment of a borrower’s loan obligations. Full recourse debt is nearly risk free to the lender.

Lenders may choose to integrate full recourse into a lending agreement if they believe that the collateral value on a secured asset has a high likelihood of falling. This can be common in a mortgage loan which uses a real estate property as collateral. If the borrower defaults on their mortgage loan, a lender will be led to seize the property and foreclose. If the value obtained from the resale of the property does not fully cover the entire amount owed by the borrower on the loan then a full recourse provision gives the lender the right to go after additional assets for the remaining amount. Depending on the recourse loan terms a lender may have rights to a borrower’s bank accounts, investment accounts or employment wages.

In contrast, non-recourse debt does not give a lender any rights to additional assets if default occurs on a secured loan. In a non-recourse mortgage loan, the lender would not have rights to any assets beyond the real estate collateral. This presents some collateral risk for the lender since there is a chance that the collateral value could fall below a borrower’s repayment value. As a mortgage loan progresses the collateral risk will decrease for the lender since greater portions of the loan are paid off.

The risk of the collateral value falling is generally an important consideration in the underwriting process. This is one reason that lenders typically have a loan-to-value threshold for the principal amount they will issue to a secured borrower. Most lenders will usually issue a loan for up to approximately 70% of the value of a borrower’s secured collateral.