What is Recourse? A Comprehensive Guide to Its Legal Meaning

Definition & Meaning

Recourse refers to an agreement where a bank continues to hold some level of credit risk related to an asset it has sold. This risk can be direct or indirect and must exceed the bank's proportionate claim on that asset. If the bank has no claim on the asset after the sale, any credit risk retained is considered recourse. Essentially, recourse allows a bank to maintain some responsibility for the asset's performance even after it has been sold.

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Legal Use & context

Recourse is primarily used in the context of finance and banking law. It often arises in transactions involving asset sales, securitization, and loans. Legal practitioners may encounter recourse in civil law, particularly in cases involving contracts and financial agreements. Users can manage related legal documents using templates from US Legal Forms that are designed by experienced attorneys.

Key legal elements

Real-world examples

Here are a couple of examples of abatement:

Example 1: A bank sells a mortgage-backed security but retains the right to claim against any defaults on the underlying mortgages. This arrangement creates recourse for the bank.

Example 2: A bank sells a loan to another financial institution but agrees to cover any losses that exceed a certain threshold. This also constitutes recourse. (hypothetical example)

State-by-state differences

Examples of state differences (not exhaustive)

State	Recourse Regulations
California	Specific laws govern recourse in mortgage transactions.
New York	Recourse provisions are defined under state banking regulations.
Texas	Recourse is limited in certain asset-backed transactions.

This is not a complete list. State laws vary, and users should consult local rules for specific guidance.

Comparison with related terms

Term	Description	Difference
Non-recourse	A loan where the lender's only remedy in case of default is to take the collateral.	Unlike recourse, the lender cannot seek further compensation from the borrower.
Recourse loan	A loan that allows the lender to pursue the borrower's other assets if the loan defaults.	Recourse loans involve a higher risk for borrowers compared to non-recourse loans.

Common misunderstandings

What to do if this term applies to you

If you find yourself in a situation involving recourse, consider the following steps:

Review the terms of your agreement to understand your obligations.
Consult with a financial advisor or attorney to clarify your rights and responsibilities.
Explore US Legal Forms for templates that can help you draft or review relevant documents.
If the situation is complex, seek professional legal assistance.

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Quick facts

Attribute	Details
Typical Fees	Varies by agreement and legal counsel.
Jurisdiction	Applicable in all states with variations.
Possible Penalties	Depends on the terms of the recourse agreement.