Also known as: recourse liabilities · recourse
Written by attorneys · grounded in primary & secondary sources — see below
A debtor's personal obligation to repay a debt secured by collateral that permits the creditor to pursue the debtor's other assets upon default.
Rising Sun Electronics board approves a loan from Redwood Bank secured by factory equipment. The loan documents impose recourse liability on the corporation. No shareholder vote occurs because the pledge falls within ordinary board authority.
Ravi Reddy borrows from Regal Apparel and Rajesh Rao signs as secondary obligor. The security agreement grants Rajesh a right of recourse against Ravi if the lender collects from Rajesh. Rajesh later pays the lender and sues Ravi for reimbursement.
Redwood Bank holds a security interest in Rhapsody Entertainment receivables. After default the bank collects directly from account debtors but recovers only partial amounts. The bank charges the shortfall back to Rhapsody under the recourse provision in the security agreement.
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Renata Russo sells mortgaged land to Roger Ramirez who assumes the debt. The original lender later forecloses and obtains a deficiency judgment against Renata because the sale price fell short of the balance. Renata remains personally liable under the recourse terms of the original note.
Raymond Ramos personally guarantees a construction loan secured by project property. After foreclosure the lender sues Raymond for the remaining balance. The court enforces the guaranty because the loan documents created recourse liability against Raymond.
Rowan Russell signs a recourse note for a corporate loan secured by inventory. The lender obtains a judgment against Rowan after the collateral sells for less than the debt. Rowan must satisfy the judgment from personal assets because the obligation is recourse.
Recourse liability allows the creditor to pursue the debtor personally for any deficiency after collateral is exhausted. Nonrecourse liability limits the creditor to the collateral alone. The distinction appears in loan documents and affects both collection rights and tax basis calculations.
A secured party may charge back uncollected amounts to the debtor or secondary obligor after attempting collection in a commercially reasonable manner. The right arises under the security agreement or other law. Commercial reasonableness is required whenever the secured party undertakes collection.
A transfer does not automatically relieve the original borrower of personal liability. The mortgagee may still proceed against the transferor unless an express release or suretyship defense applies. Assumption by the transferee creates additional rights but does not discharge the transferor.
Courts consider undercapitalization, commingling of funds, failure to observe formalities, and use of the entity to avoid personal liability. These factors may justify disregarding the corporate form so creditors can reach shareholders. Mere undercapitalization alone is usually insufficient without evidence of alter-ego misuse.
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