Which statement about non-recourse lending is true?

• A. The borrower is always personally liable for any shortfall on a non-recourse loan.
• B. The lender may pursue borrower assets beyond collateral in non-recourse loans.
• C. Non-recourse loans are not secured by collateral.
• D. In a non-recourse loan, liability is limited to the collateral; the borrower is not personally liable for shortfall.

Answer: (D)

Non-recourse lending means the borrower’s liability is limited to the collateral. If the borrower defaults and the collateral is sold for less than the loan balance, the lender cannot seek the remaining deficiency from the borrower’s personal assets. This is why the statement that liability is limited to the collateral and the borrower is not personally liable for shortfall is true.

In practice, there can be exceptions—if fraud or misrepresentation occurred, or if the loan includes a personal guaranty or other carve-outs, the lender may pursue personal assets. The other options miss this fundamental point: one asserts personal liability in all cases, another says the lender can go beyond collateral, and another claims there’s no collateral at all.