What Is “Without Recourse”?
“Without recourse” (also called non‑recourse) is a contract term that releases the seller, endorser, or transferor from liability if the primary payer or obligor fails to pay. The buyer or assignee assumes the loss risk instead. Common contexts include promissory notes, loan sales, check endorsements, real estate loans, and certain securities transactions.
How It Differs From “With Recourse”
- With recourse: the original party can be pursued for payment if the obligor defaults. Lenders or sellers can seek repayment from the originator’s other assets or require indemnification.
- Without recourse: the original party has no further obligation; the purchaser or holder bears the loss and typically can only look to the pledged collateral (if any).
Recourse Financing — Practical Implications
- With recourse financing allows the lender to recover shortfalls by pursuing additional assets, income, or deposit accounts of the borrower or guarantor.
- Without recourse financing limits recovery to specified collateral. If the obligor defaults, the lender or buyer absorbs losses beyond the collateral’s value.
Sales and “As‑Is” Transactions
- “Without recourse” sales transfer all risk to the buyer. This often appears in “as‑is” transactions where the buyer cannot later seek compensation for defects.
- In contrast, sales “with recourse” permit the buyer to claim repair, replacement, or refund from the seller under certain conditions.
Banking and Endorsements
- Endorsing a negotiable instrument with “without recourse” signals that the endorser won’t be liable if the instrument is dishonored (for example, a bounced check).
- Example: If an endorser writes “without recourse” on a check endorsement, a bank that collects and is later refused payment typically cannot pursue that endorser for the amount.
Promissory Notes and Loan Assignments
- When a promissory note or loan is sold “without recourse,” the original lender (seller) is not responsible for borrower default; the purchaser assumes the risk.
- An assignment marked “without recourse” generally prevents the borrower or assignee from holding the originator liable for loan performance or defects in origination.
Real Estate and Non‑Recourse Loans
- Non‑recourse real estate loans limit the lender’s recovery to the collateral (the property). If the borrower defaults, the lender can foreclose but cannot pursue the borrower’s other assets.
- Non‑recourse loans often carry higher interest or stricter underwriting because the lender’s recovery options are limited.
Securities and Deposit Instruments
- In some securities or certificate of deposit (CD) transfers, “without recourse” means the seller does not have to indemnify the buyer for market losses or payment failures beyond agreed terms.
How to Endorse a Check “Without Recourse”
- Sign the back of the check exactly as the payee name appears.
- Below your signature, add the words “without recourse.”
- Deliver the check to the recipient or institution.
Note: Adding “without recourse” is a way to disclaim liability, but its legal effect can vary by jurisdiction and circumstance. Confirm enforceability for significant transactions.
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When to Use “Without Recourse” and Risks
- Use when you want to transfer assets or obligations but not retain future liability (common for sellers, securitizers, or endorsers).
- Risks for the buyer/investor: full exposure to defaults, market losses, and origination defects.
- Because risk shifts to the purchaser, such instruments often trade at a discount or carry higher yields to compensate.
Key Takeaways
- “Without recourse” removes future claims against the transferor; the purchaser bears default risk.
- It appears in loan sales, endorsements, real estate financing, and securities transactions.
- The term changes bargaining leverage and pricing: sellers favor it, buyers demand compensation for increased risk.
- Legal effects can vary—seek legal or financial advice for large or complex transactions.
Bottom Line
“Without recourse” means the transferor is relieved of liability if the obligor fails to pay. This simplifies sellers’ exposure but shifts potential losses to buyers or investors, so both sides should understand the risk allocation and price or document transactions accordingly.