Which type of debt is characterized as nonrecourse debt?

Which type of debt is characterized as nonrecourse debt?

• A. An automobile lease
• B. A home mortgage where the buyer is personally liable
• C. A personal loan for which the borrower is not personally responsible
• D. Any business debt secured by collateral

Answer: (C)

Nonrecourse debt refers to a type of loan wherein the lender's recovery options are limited solely to the collateral pledged for the loan, and the borrower is not personally liable if the loan is not repaid. This means that if the borrower defaults, the lender cannot pursue the borrower's other assets or seek additional payments beyond the collateral itself. In the context of the given choices, the personal loan where the borrower is not personally responsible aligns with this definition. The lender can only claim the collateral, and the borrower has no personal liability for any deficiency if the debt is unpaid. As a result, should the collateral fail to cover the owed amount upon default, the lender’s recourse is limited solely to that collateral. In contrast, an automobile lease does not typically serve as nonrecourse debt because the lessee has obligations that may lead to further financial responsibilities. A home mortgage where the buyer is personally liable characterizes recourse debt, as the homeowner can be pursued for any unpaid balance after foreclosure. Business debt secured by collateral may also involve personal liability, depending on the terms agreed upon by the borrower, which means it does not inherently qualify as nonrecourse. Therefore, the unique property of nonrecourse debt is embodied in the notion of a

Nonrecourse debt refers to a type of loan wherein the lender's recovery options are limited solely to the collateral pledged for the loan, and the borrower is not personally liable if the loan is not repaid. This means that if the borrower defaults, the lender cannot pursue the borrower's other assets or seek additional payments beyond the collateral itself.

In the context of the given choices, the personal loan where the borrower is not personally responsible aligns with this definition. The lender can only claim the collateral, and the borrower has no personal liability for any deficiency if the debt is unpaid. As a result, should the collateral fail to cover the owed amount upon default, the lender’s recourse is limited solely to that collateral.

In contrast, an automobile lease does not typically serve as nonrecourse debt because the lessee has obligations that may lead to further financial responsibilities. A home mortgage where the buyer is personally liable characterizes recourse debt, as the homeowner can be pursued for any unpaid balance after foreclosure. Business debt secured by collateral may also involve personal liability, depending on the terms agreed upon by the borrower, which means it does not inherently qualify as nonrecourse. Therefore, the unique property of nonrecourse debt is embodied in the notion of a