Recourse Loans and the HUD 223(f) Loan Program
If a loan is recourse and the borrower defaults (fails to repay the loan), the lender can seize both the collateral used to secure the loan and the borrower’s assets which are not used as collateral. Depending on how a loan is structured, this sometimes means that a lender can seize a borrower’s personal assets. Fortunately for borrowers, HUD 223(f) loans are non-recourse. This means that the lender can only seize a borrower’s collateral in the case of default, and cannot attempt to go after their other assets.
However, most HUD 223(f) loan agreements do contain “bad boy carve-outs,” which means that a borrower can go after a borrower’s non-collateral assets, but only if the borrower has committed certain bad acts, such as financial fraud or embezzlement.