What is a non-recourse loan?
Any loan that is purchase-money (has not been refinanced) on an owner-occupied 1-4 unit dwelling. This definition applies to both 1st Trust Deeds and 2nd (junior) Trust Deeds. A non-recourse loan is very favorable because the lender's only recourse, in case of default, is the property itself. The lender cannot pursue the borrower for a deficiency judgment or attempt to collect money or any other asset from the borrower.
What is a recourse loan?
Any loan that is not non-recourse, including all refinanced loans, equity lines of credit and loans used to purchase rental property
. This includes rate & terms refinances where no cash was taken out. In case of default, the lender is not limited to taking the property back and the borrower may be personally liable on the debt. In California, any recourse loan that is foreclosed on non-judicially through a Trustee Sale, becomes non-recourse.