Full Recourse Debt - Explained
What is Full Recourse Debt?
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Table of ContentsWhat is Full Recourse Debt?How Does Full Recourse Debt Work?Full Recourse Debt ProvisionsNon-Recourse Debt
What is Full Recourse Debt?
Full recourse debt is a secured debt but offers more protection to a lender unlike other types of secured debts. In full recourse debt, a & lender has the right to seize assets outside the collateral that are owned by the borrower for the repayment of the debt owed. In this type of debt, a lender has the assurance of repayment of an entire loan regardless of whether the borrower is faced with financial hardship. Full recourse debt is backed by collateral but the lender has right to other assets, in the event of default by a borrower. The assets can be seized and the lender will sell them for the repayment of the loan.
How Does Full Recourse Debt Work?
Full recourse debt differs from other non-recourse debt that might also be variants of secured debt. In full recourse debt, the granter of debt is entitled to a full repayment and has the right to take any assets belonging to the debtor to satisfy the debt owed. While other forms of secured debts give the granter limited options to reclaim the debt owed, the full recourse debt grants an unlimited option for the repayment of the debt.
Full Recourse Debt Provisions
In a loan agreement, lenders incorporate full recourse debt clause when they perceive that the collateral that backs the loan has the chances of decreasing in value of failing. For borrowers entering into a secured debt agreement, there will be a provision of either full recourse or non-recourse. When full recourse provision is included in the loan contract, this tells the borrower that the lender has the right assets belonging to the borrower outside of the specified collateral for reclaiming the debt owed. Furthermore, the terms of a full recourse are included in the loan contract, in certain situations, the lender can have rights to investment plans or bank accounts of the debtor.
The opposite of recourse debt is a non-recourse debt, this type of debt does not permit a lender to access other assets owned by a borrower. Even if the borrower defaults on the loan in a non - recourse debt, additional assets outside of the collateral cannot be seized or sold by the lender, because this contract provides no such rights. While a lender leverages additional assets to recoup a debt in a recourse debt, especially when the value of the collateral falls, a lender has no rights to extra assets in a non-recourse debt.