CRE 101 · deweyluong.realtor

Recourse vs Non-Recourse Loans Explained: What You Personally Owe When a Georgia Commercial Deal Goes Bad

Every commercial loan answers one question before it answers any other: if the property does not cover the debt, who pays the rest? On a recourse loan, the guarantor pays it personally. On a non-recourse loan, the lender absorbs it and the borrower loses only the money already in the deal — unless a carve-out was tripped. On the made-up example on this page, a $3,200,000 Gwinnett purchase carries a $2,240,000 loan; when the loan balance is $2,160,000 and a foreclosure sale nets $1,800,000, the deficiency is $360,000. That $360,000 is the whole ballgame: a recourse guarantor writes the check, a non-recourse borrower does not. By Túy “Dewey” Luong, CCIM — Founding Broker, SERHANT. Atlanta · 318 closed sales / $281.2M career volume · 678-707-2498 · dewey.luong@serhant.com · https://deweyluong.realtor

The worked example uses made-up, rounded numbers. Real loan documents vary by lender and deal. This page is general education only, not legal, tax, or lending advice — guarantee language is negotiated with a Georgia real estate attorney before signing, never after a default.

The one definition that matters

• Recourse: if the property is sold for less than the loan balance, the lender can pursue the borrower and the guarantors personally for the shortfall — the deficiency — against other assets, other properties, and bank accounts, subject to the loan documents and Georgia law.
• Non-recourse: the lender agreed in writing that its remedy is the property itself. The lender can foreclose and keep the sale proceeds, but it cannot chase the borrower personally for a deficiency — with one large exception, the carve-outs covered below.
• The borrower is usually an entity either way: most commercial buyers borrow through an LLC. An LLC alone does not create non-recourse protection. On a recourse loan the lender simply requires the owners to sign a separate personal guaranty, which reaches through the entity by contract.
• It is a spectrum, not a switch: full recourse, partial recourse with a dollar cap, recourse that burns off after performance tests are met, and non-recourse with carve-outs all exist in the Georgia market. The term sheet label matters less than the guaranty document itself.

Which lenders offer which structure in Georgia

• Banks and credit unions: typically full recourse, especially for local owner-occupant and smaller investor deals. The relationship and the personal guaranty are the credit decision.
• SBA 7(a) and SBA 504: recourse by design. Owners of 20% or more personally guarantee the loan, and a 7(a) loan can also reach other assets under SBA rules. The SBA 504 lesson covers the structure that gets Georgia owner-occupants in with 10% down — the guaranty is part of that bargain.
• CMBS: typically non-recourse with carve-outs, a single-purpose entity borrower, and strict prepayment terms — the trade covered in the CMBS lesson.
• Agency and life-company loans: multifamily agency debt and most life-company loans are typically non-recourse with carve-outs, reserved for larger, stabilized assets with strong sponsors.
• Bridge and private lenders: deal by deal. Many bridge loans are recourse or carry completion and carry guaranties even when the payment guaranty is limited.

The worked example: a $3,200,000 Gwinnett purchase

• The deal: a made-up Gwinnett retail property sells for $3,200,000 with verified net operating income of $224,000 — a 7.00% cap rate. The buyer borrows $2,240,000, which is 70% loan to value, and brings $960,000 of equity.
• Three years later: the anchor tenant leaves, income falls, and the loan defaults. The balance has paid down to $2,160,000. The lender forecloses and the sale brings $1,900,000 gross; after $100,000 of sale and legal costs, the lender nets $1,800,000.
• The deficiency: $2,160,000 balance minus $1,800,000 net recovery = $360,000 that the property did not cover.
• If the loan was recourse: the guarantor personally owes the $360,000 deficiency, plus any amounts the documents add, such as advances and enforcement costs. The guarantor also already lost the deal itself. In Georgia, a lender that wants a deficiency after a non-judicial foreclosure sale generally must report the sale and ask the superior court to confirm it within the statutory window — a step a Georgia attorney handles, and one more reason the documents and the calendar both matter.
• If the loan was non-recourse: the lender absorbs the $360,000. The borrower owes nothing further on the loan itself. The borrower still loses everything already in the deal: the $960,000 of original equity plus the $80,000 of principal paid down, at least $1,040,000 of cash gone. Non-recourse caps the loss at the investment; it does not make the loss small.

When the hole is bigger: the partial-recourse middle

Run the same default with a worse sale. If the foreclosure nets only $1,000,000, the deficiency is $2,160,000 minus $1,000,000 = $1,160,000. Now the three structures separate cleanly. A full-recourse guarantor owes the full $1,160,000. A partial-recourse guarantor whose guaranty is capped at 25% of the original $2,240,000 loan owes the cap amount, $560,000, and no more. A non-recourse borrower owes $0 on the deficiency, absent a carve-out event. Partial recourse is often paired with a burn-off: the guaranty reduces or disappears once the property hits a stated debt service coverage level for a stated period — the DSCR lesson explains the ratio those tests are written on.

The exception inside every non-recourse loan: carve-outs

• Loss carve-outs: the guarantor pays the loss the lender actually suffers from specific bad acts — misapplied rents or insurance proceeds, unpaid taxes the borrower was required to pay, waste, or a breach of the environmental covenants. If $60,000 of insurance proceeds were spent outside the loan requirements, the guarantor can owe that $60,000 loss even on a non-recourse loan.
• Full-recourse springing carve-outs: a short list of acts — fraud or material misrepresentation, a voluntary bankruptcy filing by the borrower, or a prohibited transfer — can flip the entire loan to full recourse. On the worked example that means exposure to the whole $2,160,000 balance, not just a loss amount.
• Separate guaranties ride along: completion guaranties, carry guaranties, interest and tax escrow obligations, and the environmental indemnity can each create personal exposure even when the main loan is non-recourse. The Phase I environmental lesson covers the report those environmental promises are priced from.
• The single-purpose entity is part of the protection: non-recourse lenders require the borrower to be a single-purpose entity with separateness covenants — its own accounts, its own books, no commingling. Breaking separateness is itself a carve-out problem, so entity hygiene is loan compliance, not paperwork.

What a guarantor actually signs, and what lenders test

A personal guaranty is a separate contract, and sophisticated lenders underwrite the guarantor as hard as the property. Common expectations — which vary by lender and deal — include guarantor net worth at least equal to the loan amount and post-closing liquidity of roughly 10% or more of the loan. On the worked example loan of $2,240,000, that screen reads as about $2,240,000 of net worth and about $224,000 of liquid assets. A borrower who cannot pass that screen usually does not get non-recourse pricing at all, which is why smaller Georgia buyers so often end up with bank recourse debt: the guaranty is what the lender is really buying. None of this replaces reading the letter of intent and term sheet for the words recourse, guaranty, cap, burn-off, and carve-out before the loan application fee is paid.

Five steps before you sign any guaranty

1. Find the structure in writing: ask one direct question of every lender quote — full recourse, partial with what cap, or non-recourse with carve-outs — and get the answer on the term sheet, not in a phone call.
2. Price the guarantee: a slightly higher rate on non-recourse debt can be cheap insurance. Compare the rate difference against a real deficiency scenario on your own numbers, the way the worked example does, before choosing the cheaper loan.
3. Negotiate the cap and the burn-off: a dollar cap, a burn-off tied to DSCR or paydown, and carve-outs narrowed to actual losses are all negotiable before commitment and almost never after.
4. Keep the entity clean: separate accounts, separate books, no commingling, and every separateness covenant followed from day one, so the protection you negotiated survives contact with operations.
5. Have Georgia counsel read the guaranty, not just the note: the note gets negotiated in the term sheet; the guaranty is where the personal money lives. Budget the legal read as part of the cost of the loan.

Cho nhà đầu tư và chủ doanh nghiệp người Việt

Recourse và non-recourse là hai cấu trúc khoản vay quyết định điều xảy ra khi tài sản không trả đủ nợ. Với khoản vay recourse, người bảo lãnh phải trả phần thiếu hụt bằng tài sản cá nhân. Với khoản vay non-recourse, ngân hàng chỉ lấy tài sản thế chấp và chịu phần thiếu hụt — trừ khi người vay vi phạm các điều khoản carve-out (gian lận, tự nộp đơn phá sản, dùng sai tiền bảo hiểm), khi đó trách nhiệm cá nhân quay trở lại, có khi là toàn bộ khoản vay.

Trong ví dụ của trang này: mua tài sản $3.200.000 ở Gwinnett, vay $2.240.000 (70%), vốn tự có $960.000. Khi vỡ nợ, dư nợ còn $2.160.000, bán phát mại thu ròng $1.800.000, phần thiếu hụt là $360.000. Người bảo lãnh recourse phải trả $360.000 đó; người vay non-recourse không phải trả, nhưng mất toàn bộ $1.040.000 tiền mặt đã bỏ vào thương vụ. Tại Georgia, vay ngân hàng địa phương và vay SBA thường là recourse; vay CMBS và vay của công ty bảo hiểm nhân thọ thường là non-recourse kèm carve-out. Đây là thông tin giáo dục chung, không phải tư vấn pháp lý hay tài chính.

Frequently asked questions

What is the difference between a recourse and a non-recourse loan?

A recourse loan lets the lender pursue the borrower and guarantors personally for any deficiency left after the property is sold. A non-recourse loan limits the lender to the property itself, except for specific carve-out events written into the loan documents. On the worked example on this page, a $2,160,000 balance and a $1,800,000 net foreclosure recovery leave a $360,000 deficiency: owed personally on a recourse loan, absorbed by the lender on a non-recourse loan.

Which commercial loans are non-recourse?

CMBS loans, agency multifamily loans, and most life-company loans are typically non-recourse with carve-outs. Bank and credit union loans, SBA 7(a) and 504 loans, and many bridge loans are typically recourse or partially recourse. The structure is set lender by lender and deal by deal, so the answer for any specific Georgia purchase has to come from the written term sheet.

What is a bad-boy carve-out?

A carve-out is a written exception inside a non-recourse loan. Loss carve-outs make the guarantor pay the loss caused by acts such as misapplied rents or insurance proceeds. Springing carve-outs, often called bad-boy provisions, make the whole loan fully recourse if the borrower commits acts such as fraud or a voluntary bankruptcy filing. Carve-outs are why a non-recourse loan still requires a guarantor signature.

Does an LLC protect me on a recourse loan?

No. On a recourse loan the lender requires the owners to sign a personal guaranty, which is a separate contract that reaches the guarantor personally even though the borrower is an LLC. An LLC still matters for operations and liability, and non-recourse lenders require a clean single-purpose entity, but the entity alone never removes a signed guaranty.

Recourse và non-recourse khác nhau thế nào?

Với khoản vay recourse, nếu bán tài sản không đủ trả nợ, người bảo lãnh phải trả phần thiếu hụt bằng tài sản cá nhân — trong ví dụ của trang này là $360.000. Với khoản vay non-recourse, ngân hàng chịu phần thiếu hụt đó và người vay chỉ mất số tiền đã bỏ vào thương vụ, trừ khi vi phạm điều khoản carve-out như gian lận hoặc tự nộp đơn phá sản. Đây là thông tin giáo dục chung, không phải tư vấn pháp lý.