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What is a Non-Recourse Assignment? A Comprehensive Legal Guide
Definition & Meaning
A non-recourse assignment refers to a transaction where a promissory note is sold without any additional agreements or guarantees from the person assigning the note. In this type of assignment, the assignor does not take on any liability for the repayment of the note. This means that if the borrower defaults, the assignee can only seek repayment from the collateral backing the note, not from the assignor's personal assets.
Table of content
Legal Use & context
Non-recourse assignments are commonly used in financial transactions, particularly in real estate and commercial lending. They are relevant in areas such as:
Real estate financing
Commercial transactions
Investment agreements
Users can manage non-recourse assignments through legal forms, which can help clarify the terms of the assignment and protect the interests of all parties involved.
Key legal elements
Real-world examples
Here are a couple of examples of abatement:
Example 1: A real estate investor purchases a property and finances it through a promissory note. They decide to assign the note to another investor without any personal guarantees. If the borrower defaults, the second investor can only recover from the property itself, not from the original investor's personal assets.
Example 2: A company issues a non-recourse assignment of a loan to a third party, allowing them to collect payments from the borrower. If the borrower fails to pay, the third party can only claim against the loan's collateral, not the company's other assets. (hypothetical example)
State-by-state differences
Examples of state differences (not exhaustive):
State
Key Differences
California
Non-recourse assignments are common in real estate transactions, particularly for residential properties.
Texas
Non-recourse provisions are often included in commercial loans, with specific regulations governing their use.
New York
Non-recourse assignments may require additional disclosures to protect both parties.
This is not a complete list. State laws vary, and users should consult local rules for specific guidance.
Comparison with related terms
Term
Definition
Key Differences
Recourse Assignment
An assignment where the assignor guarantees repayment.
The assignor is liable for defaults, unlike in a non-recourse assignment.
Collateral Assignment
A transaction where an asset is pledged as security for a loan.
Collateral assignments may involve personal guarantees, while non-recourse assignments do not.
Common misunderstandings
What to do if this term applies to you
If you are considering a non-recourse assignment, follow these steps:
Consult with a legal professional to understand the implications.
Draft a clear assignment agreement that outlines the terms.
Consider using US Legal Forms to access templates that can simplify the process.
If your situation is complex, seeking professional legal help is advisable.
Find the legal form that fits your case
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