The terms you won’t find in a non-recourse commercial property loan, in addition to the mandatory assigning of the property as collateral, are those that relate to the borrower signing a personal guarantee. Conversely, a “with recourse” loan reflects just the opposite: a borrower personal guarantee is included. In both cases collateralized real estate is the common factor, which simply means in the event of a default the lenders’ first recourse is to take the asset back. The differentiation between the 2 loan types only becomes pivotal when the lender goes to sell the property to recoup loan principal and any back interest payments plus expenses.
Here is an illustrative example:
A lender is owed $2 million at the time of a property foreclosure.
After retrieving the property, the lender sells it for only $1.5 million incurring a $500k deficit on the advance to the borrower.
In a with recourse loan: the lender can look to the “with recourse” borrower to make up the difference based on its/his/her personal guarantee.
In a non-recourse commercial loan: the non-recourse lender would have no such remedy.
Exception: Even with a non-recourse loan there may be instances where a personal guarantee could be triggered – commonly referred to as recourse carve-outs or bad-boy carve-outs. These are typically instances where fraud, theft, misrepresentation, etc. have played a role in the lender’s misfortune with the real estate.
As a borrower looking to fund industrial, commercial, and mixed-use real estate clearly obtaining a non-recourse loan offer should be top-of-mind as you enter the market for asset-backed funding.
Question – Why? Answer – Simply because it effectively removes actual and potential personal liability if the collateral is not enough to recover the principal. It is an easy decision when looking at the fundamental question of risk minimization and peace of mind. Here’s the big kicker: the “with or without recourse” decider is relatively uncomplicated and not connected to rates, LTV or other internal loan technicalities. Indeed, very often non-recourse commercial loans have superior rates and terms compared to with recourse arrangements offered by local banks. In the real estate investment arena, it’s as close to having your cake and eating it as you can get.
Investment in real estate is most successful when it’s built on strong relationships and we have them. So put your trust in Clopton Capital to locate the best non-recourse property funders. Our commercial mortgage brokers have concluded several $ billion of commercial mortgage and refinance deals over 10 years using bridge loans, construction loans, mezzanine financing, preferred equity, and real estate private equity.
Non-recourse commercial loans get the most receptive response when a single-purpose owning entity like a partnership, a trust, a corporation, an LLC, a Delaware Corporation, an estate, or a foreign national is under focus. Generally, the mandate is to hold title to a property that is an asset free of other liabilities and complications outside of the collateralization.
Clopton is a national commercial mortgage broker that gives our clients looking to borrow from $1 million – $40 million on-demand access to the most competitive commercial non-recourse lenders in the business. We offer customized loan solutions for all types of commercial real estate transaction types where personal guarantees do not enter the conversation.
When you apply through us we will do our due diligence before deciding to underwrite but once decided we’ll set you off on the non-recourse loan track straight away. It will make a huge difference to your peace of mind over the long run. What better formula is there than the best rates in the business, no compromise on standard redemption terms, fast approval, and zero worrying about your personal liability?
Once the big move has been made and a non-recourse leveraging position secured we’ll take you through such specifics as interest-only loans, loans with amortization, fixed and adjustable interest rates, appraised value, and yield maintenance etc. You will always be kept in the loop on every aspect of your non-recourse transaction from end-to-end in keeping with the heralded Clopton policy of full transparency.
Contact Clopton to discuss our non-recourse commercial loan options
To understand more about non-recourse loan options, contact one of our commercial mortgage lenders by calling 866-647-1650 or using the Contact Us form available from the menu. We’re always happy to work with investors to find the right non-recourse commercial loan rates and repayment plans to suit your needs. And with low closing costs attached to a straightforward documentation and underwriting process, your commercial non-recourse loan process will be stress-free.