Differentiate recourse and non-recourse lending.

• A. Recourse loans make the borrower liable for any shortfall; non-recourse loans limit liability to the collateral; example: investment property with recourse to borrower's other assets.
• B. Non-recourse loans require the borrower to pay the shortfall from personal assets.
• C. Either type allows unlimited personal liability beyond collateral.
• D. Lenders never pursue recourse on shortfalls.

Answer: (A)

The main idea is who bears the risk if the loan balance exceeds what the collateral can cover. In a recourse loan, the borrower is personally liable for any deficiency. If the collateral doesn’t sell for enough to repay the loan, the lender can pursue the borrower's other assets to recover the shortfall. In a non-recourse loan, the lender’s remedy is limited to the collateral itself; the borrower isn’t personally liable beyond what that collateral can be sold for, barring any guarantees or fraud exceptions.

This is why the statement that recourse loans make the borrower liable for any shortfall and non-recourse loans limit liability to the collateral is correct. The example given—investing in property with recourse to the borrower’s other assets—illustrates how personal assets can be pursued in a recourse structure.

The other ideas don’t fit because non-recourse does not require personal payment of a shortfall, unlimited personal liability isn’t the norm for either type, and lenders do pursue shortfalls under recourse loans, so the notion that they never pursue recourse is incorrect.