What type of financing is referred to when the lender has no recourse against the borrower for unpaid amounts after foreclosure?

In the context of financing, nonrecourse financing specifically refers to loans where the lender’s only remedy in the event of default is to foreclose on the property that was used as collateral. Once the property is foreclosed, the lender cannot pursue the borrower for any further amounts that may be owed beyond the value of the property. This means that if the sale of the property does not cover the outstanding loan balance, the lender has no legal right to seek additional payment from the borrower personally.

This type of financing is significant because it provides a level of protection for borrowers, allowing them to limit their financial liability to the asset itself. In contrast, recourse financing would allow the lender to seek repayment beyond the asset in case of default, potentially putting the borrower's personal assets at risk. Understanding these distinctions is crucial for real estate professionals, as they influence risk management strategies and investment decisions.