Nonrecourse

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Term referring to the absence of any legal claim against a seller or prior endorser. The seller (or the endorser of a check or other Negotiable Instrument) is not liable or otherwise responsible for payment to the holder. The absence of recourse is a key element in determining whether a sale of assets is actually a sale for tax and accounting purposes and a transfer of ownership from seller to buyer. See also Asset Sales; Endorsement.

No personal liability. Lenders may take the property pledged as collateral to satisfy a debt , but have no recourse to other assets of the borrower.


Example: purchases a property with a nonrecourse loan. Should Downing default , the lender may foreclose and acquire the property but is barred from seeking a judgment against other properties held by Downing.

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Without personal liability. An obligation that is nonrecourse does not provide a basis for federal taxation purposes for individuals or partnerships except in certain limited cases such as when real estate is involved. If a promisor has limited his exposure in the event of a default to a particular pledged asset such as his equity in a building or entity, his obligation will be regarded as nonrecourse.
Individuals often structure transactions in corporate form to achieve similar limited personal liability.

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Liable (business term)
Recourse (business term)
Nonrecourse Debt (business term)