When a lender can collect against assets that you have not put up as collateral, it is said to be a recourse loan. A recourse loan gives the lender much more leeway in collecting what it’s owed over its contract rights in a non-recourse loan. Read on to learn more of how a recourse loan differs from a non-recourse loan.
If you take out a recourse loan, your lender will have more ways to ensure that the loan is paid. To get a recourse loan, at a minimum, you will sign a note promising to repay the money you borrowed (plus interest) according to some schedule that probably begins almost directly after you borrow the money. But if you don’t pay as agreed, the lender can sue you. With a judgment, the lender can seize the money in your bank accounts, place a lien against your home or other real estate or even force its sale, seize other assets like personal property, or in some states, collect through a garnishment of your wages.
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If you plan to use the recourse loan to purchase something like a car or a house, the lender will require that you not only promise to repay the loan, but you’ll agree that the lender can take possession of the property if you fail to make the payments, generally without having to go to court to obtain a judgment first. This second promise is called a security agreement. The property you put up to secure the loan is called collateral.
Sometimes, the lender will go even further and require that you use the property you already own as collateral. This is common with car title loans. But sometimes lenders, especially storefront loan companies and small banks, will require that you put up your furniture, appliances, jewelry, boat, trailer, or other real estates, as collateral.
What About the Deficiency Balance?
With recourse loans, repossession and foreclosure are hardly ever the end of the story. The sale of the collateral almost never covers what you owe on your loan. The amount that remains is called the deficiency balance. Even when the collateral isn’t worth enough to pay off the loan, the lender still has the right to collect the deficiency balance from you. That is why it is called a recourse loan. The lender has recourse to seek payment some other way. That repayment either requires that you pay the balance personally, perhaps out of your future wages or from the cash you have in bank accounts, or it allows the lender to seize and sell assets that you own, even if you did not put up those assets as collateral on the loan. Usually, the lender first has to file a lawsuit against you and obtain a judgment from the court. With the judgment, the lender can seize the money in your bank accounts, place a lien against your home or other real estate or even force the sale, seize other assets like personal property, or in some states, collect through a garnishment on your wages.
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Your Agreement with Tribeca Capital is Non-Recourse
If a recourse loan is one that you must repay no matter what, that implies that there are loans you might not always be required to repay. For instance, the transaction you enter into with Tribeca Capital, what we call a lawsuit loan, is non-recourse. In fact, it’s not a loan at all. When Tribeca Capital agrees to help you finance your litigation, in effect it is purchasing a piece of that litigation by investing in the lawsuit.
If you settle or win your lawsuit, Tribeca will be repaid from the settlement proceeds or judgment award. But, because it is not a recourse loan, if you lose your lawsuit, Tribeca Capital will not be paid. You will never have to worry about how you’re going to repay your advances, whether Tribeca will show up at your door to take possession of your property, or if Tribeca will someday file a lawsuit against you for repayment. Tribeca Capital is either paid out of your settlement or it isn’t paid at all. That makes it non-recourse.
A lawsuit loan from Tribeca Capital carries with it much less risk than a traditional recourse loan. To learn more about how Tribeca can help ease your financial burden while you’re waiting for your lawsuit to settle, fill out the form on this website or call us at (866) 388-2288.