recourse

Recourse

Term describing a type of loan. If a loan is with recourse, the lender has a the ability has the ability to fall back to the guarantor of the loan if the borrower fails to pay. For example, Bank A has a loan with Company X. Bank A sells the loan to Bank B with recourse. If Company X defaults, Bank B can demand Bank A fulfill the loan obligation.

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recourse

(1) The ability of a lender to demand payment from a borrower if the collateral is insufficient to pay the debt in full,or even if the lender chooses not to attempt foreclosure of the collateral. (2) The requirement that the seller of a promissory note repurchase it if the borrower defaults.

Example: Vic's Vinyl Siding agrees to install siding on Nellie's house in exchange for her agreement to pay $300 a month over the next 5 years, for a total of $18,000. Nellie signs a promissory note with those payments, and a mortgage. Vic does the work and then sells the note and mortgage to Quick Cash Company, with recourse, for $10,000. Three days later the siding falls off the house and Nellie refuses to make any more payments. Under federal law, she can refuse to pay Quick Cash Company even though her dispute is with Vic's Vinyl Siding. Because the sale was with recourse, Quick Cash can force Vic to repay the $10,000 to them and take back Nellie's promissory note and mortgage. Nellie and Vic may then battle over the quality of the work.