Nonrecourse Debt

With nonrecourse debt, a lender whose borrower defaults can seize the pledged collateral but has no claim on the borrower's other assets if the sale comes up short. Cash on cash return is computed the same way with or without recourse, but the downside risk behind that return is different.

Nonrecourse terms are more common on larger commercial loans, often with carve-outs for fraud or misrepresentation. Most residential investment loans are recourse, which means the borrower is personally on the hook if a sale after default leaves a balance.

Nonrecourse loans can carry higher rates or lower loan-to-value, both of which reduce the cash on cash return. Investors sometimes accept that lower return to cap their personal exposure. The calculator shows the return; the loan documents show what is at risk if it goes wrong.

Further reading: Nonrecourse Debt on Wikipedia.