Question 1

What is the difference between recourse and non-recourse loans?

Accepted Answer

Recourse loan: the lender can pursue the borrower’s personal assets if the property does not cover the loan (most FL residential mortgages). Non-recourse loan: the lender’s only remedy is the property itself; the lender cannot pursue the borrower’s personal assets (common in commercial lending and some states’ residential lending; NOT the default in Florida). The key distinction: in a non-recourse loan, the borrower can "walk away" from the property without personal liability (subject to "bad boy" carve-outs).

Question 2

What are "bad boy" carve-outs in non-recourse loans?

Accepted Answer

Carve-outs: exceptions to the non-recourse protection that make the borrower personally liable if they engage in certain "bad" conduct: fraud or misrepresentation, waste (intentionally damaging the property), environmental contamination, failure to maintain insurance, misapplication of rents or security deposits, unauthorized transfer of the property, and filing for bankruptcy without the lender’s consent. These carve-outs: protect the lender from borrower misconduct, and make the loan effectively recourse for certain actions.

Question 3

Which type of loan is more common in Florida?

Accepted Answer

FL prevalence: residential (recourse is the default; the lender can seek a deficiency judgment under Section 702.06). Commercial (non-recourse is common for larger loans, particularly from institutional lenders; the loan documents specify whether the loan is recourse or non-recourse, and the "bad boy" carve-outs). SBA loans (typically recourse; the SBA requires personal guarantees). The borrower should: understand whether the loan is recourse or non-recourse before signing, and negotiate non-recourse terms if possible.

Recourse vs. Non-Recourse Loan

Recourse vs. Non-Recourse Loans in Florida

Distinction

Bad Boy Carve-Outs

FL Prevalence

Related Terms

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