What is a Limited Recourse Debt?

A limited recourse debt refers to a debt which a lender has limited claims if the borrower happens to default. Generally, it means that there is a legal claim against collateral posted to secure the loan, but the debtor cannot be held personally liable for the debt.

Limited Recourse vs. Full Limited Recourse

There are two forms of recourse debt; limited and full. With full recourse debt, a granter has the right to make a claim against the debtor. This could lead to the creditor seizing the borrower’s assets, including those that a borrower acquired using the original loan. On the other hand, limited recourse debt sticks to the original loan contract. In other words, a lender can only seize those assets mentioned on the contract and nothing else. The lender has no right to seize any other asset a borrower possesses, especially if it was not part of the collateral.