Unpaid debt or non-term loan (sometimes called non-recourse) is a secured loan (debt) secured by collateral, typically real estate, but for which the borrower is not personally responsible. If the borrower is late in payment, the lender can seize and sell the security, but if the collateral is sold for less than debt, the lender cannot demand that borrower`s deficit balance – its cash is limited to the value of the collateral. For example, debt is generally limited to 50% or 60% of the credit-to-value ratio, so the property itself offers « over-protection » of the loan. When it comes to selling real estate, regress has a slightly different meaning. Some states are considered states of appeal when it comes to mortgage credit contracts, which means that the lender of a home loan can close the property and then use the buyer to obtain the value of the credit, even if the owner has lost the property. The lender is being auctioned. The difference between the price the lender receives for the property and the amount owed on the loan is characterized as default. The lender can sue the borrower on this amount. In states that have no recourse laws for mortgage credit contracts, the lender cannot sue the borrower for default. The lender recovers the car and cash for full market value, leaving a deficit of $6,000. Most auto loans are loans of recourse, which means that the lender can track the borrower for the deficit balance of $6,000.
In the event that it is a non-recourse loan, the lender will lose that amount. A lender may be more willing to lend at a lower interest rate than a non-refundable loan because the lender`s risk of repayment is reduced in a non-recourse situation. As a result, some borrowers are more likely to accept terms of redress in exchange for a lower interest rate and/or other more lenient credit conditions. On the other hand, a lender may be willing to provide less credit under a non-recourse agreement, usually only up to the amount of collateral recorded on the note. Since the lender does not use the amount of collateral, it is too risky to extend additional credits. Lenders have an advantage when they offer loans without resorting to what is called « the bad boy. » The bad boy carve out refers to a clause related to almost all non-recourse loans. In the event that the borrower engages in fraudulent activities or is in any way mistaken, the loan becomes a full remedy loan without recourse, and the lender can then exercise one of the borrower`s assets in the event of default. Among the activities likely to trigger the exit clause for the bad boy, it should be noted that a lender is best able to impose a recourse contract on a borrower if the borrower is unable to obtain financing elsewhere on better terms, particularly when the borrower is in a difficult financial situation.
Conversely, a borrower may be able to claim debt without recourse if he can choose from many lenders and have financial results and asset reserves so remarkable that he can justify his claims. In the case of non-recourse debt, the creditor`s only protection against the borrower`s defaults is the ability to seize the security and liquidate it to cover the debts outstanding. Non-repayment debts are generally used to finance commercial real estate, shipping or other investment-intensive, long-term and uncertain sources of income.