Recourse and Nonrecourse loans secured by mortgages

Question 4-28-05

Is a mortgage by nature a non-recourse loan? Or can a creditor that secures a deficiency judgment go after the debtor's other assets?

Karjala Response 4-28-05

A mortgage is not a loan; a mortgage SECURES a loan, and the loan is evidenced by a promissory note.  So, the mortgage secures payment of the note.  The degree of security a mortgage gives depends on the terms of the mortgage and the note, but a major distinction is between recourse and nonrecourse mortgages.  A nonrecourse mortgage is one in which, by the terms of the note and mortgage, the mortgagee (creditor) agrees to look solely to the secured property to satisfy the note, in the event the note is not paid when due.  That means that the mortgagee can seek to have the property securing the note sold and have the proceeds paid to the mortgagee to satisfy the note.  However, if the proceeds are insufficient, the mortgagee has no recourse to the other assets of the debtor.  Generally, a note is an obligation to pay and must be paid in full.  So, unless a note is explicitly nonrecourse, the creditor can seek to apply any of the debtor's property to its payment (subject to bankruptcy limitations).  The general rule therefore is that notes secured by mortgages on property are NOT nonrecourse.  The major exception comes from the antideficiency statutes, common at least in the western states, that apply generally to mortgages securing loans on personal residences.