What does a non-recourse loan stipulate about lender liabilities?

A non-recourse loan is a type of financing that limits a borrower's personal liability. In simple terms, it specifies that if a borrower defaults on the loan, the lender's only recourse is to seize the collateral that was put up for the loan, typically the property purchased with the loan funds. The lender does not have the ability to pursue the borrower's other assets or income to recover any remaining balance of the loan after the property has been foreclosed and sold.

This structure is particularly advantageous to borrowers because it provides a safety net; they cannot be held personally liable for any loss incurred by the lender beyond the collateral itself. If the property does not sell for enough to cover the remaining mortgage balance, the lender absorbs that loss. This effectively means the borrower's financial responsibility is limited strictly to the property financed by the non-recourse loan.

This fundamental characteristic distinguishes non-recourse loans from other types of lending arrangements, where lenders have more extensive rights to pursue borrowers for remaining debts after foreclosure or liquidation of collateral.