In a non-recourse note sale, the buyer takes the risk that the payer stops paying after closing, and you owe nothing if that happens. In a recourse sale, the buyer can come back to you, usually by making you buy the note back. Either way, you still stand behind the facts you state about the note, so a false statement can create liability even in a non-recourse sale.
Notes bought through Note Brokering are bought without recourse to the seller. If the payer stops paying after the sale, that is the buyer’s problem, not yours. This page explains what that means, where the limits are, and how to check any agreement you are offered.
What recourse means
Recourse is the right to turn to someone else when the main source of payment fails. In a note sale, the main source is the payer. The question is whether the buyer can turn to you, the seller, if the payer defaults after you have been paid.
| Type of sale | If the payer stops paying after closing |
|---|---|
| Non-recourse | The buyer bears the loss and uses the remedies in the note, such as foreclosure. The seller owes nothing. |
| Full recourse | The buyer can require the seller to repurchase the note or make good the loss, with no time limit beyond what the agreement sets. |
| Limited recourse | The seller is on the hook only for a stated period or a stated number of payments, for example a default in the first six or twelve months after closing. |
The recourse terms are found in the note purchase agreement, usually under headings such as repurchase, buyback, recourse or guarantee. A clause can be written so that it does the work of recourse without using the word, so read anything that requires you to pay back money or take the note back.
What non-recourse does not cover: your warranties
Non-recourse protects you from the payer’s future behavior. It does not protect you from your own statements about the note. In every note sale the seller makes representations and warranties, promises that certain facts are true at closing. The usual ones are:
- The documents are genuine and the signatures are real
- You own the note and have the right to sell it
- The balance and the payment history are as you stated
- There are no liens, disputes or defects you have not disclosed
- You have not changed the terms with the payer in a way you have not disclosed
If one of those turns out to be false, the buyer may have a claim against you, and the agreement may require you to buy the note back for that reason. That is not recourse for default. It is liability for a statement that was untrue. The distinction matters: a non-recourse seller who told the truth owes nothing when the payer stops, while a seller who hid six missed payments may owe a great deal.
The protection is simple. Disclose what you know, in writing, before the buyer commits. A late payment, a side agreement with the payer, a lapsed insurance policy: each one disclosed is a fact the buyer priced in, and each one hidden is a possible claim. Records such as bank deposits help here; see how to prove payment history on a note.
A worked example
Illustrative example. Real agreements and figures will differ.
A seller holds a note with a $100,000 balance and sells it for $85,000. Four months after closing, the payer loses a job and stops paying.
| Agreement | What the seller owes |
|---|---|
| Non-recourse, with accurate disclosures | Nothing. The buyer keeps the note, the property behind it and the problem. |
| Limited recourse, 12-month buyback | A repurchase price set by the agreement, often the price paid minus principal the buyer collected, plus costs. Here, roughly $84,000 or more, and the seller gets back a note in default. |
| Non-recourse, but the seller hid earlier missed payments | Possibly a repurchase or damages for breach of warranty, depending on the agreement and the law. |
In the buyback case, the seller has to find about $84,000, often after spending the sale proceeds, and then deal with a defaulted note themselves. That is the risk recourse puts back on you.
Why a buyer would ask for recourse
A buyer who can hand the note back if it fails is taking less risk, so in principle can pay more. Some buyers use recourse terms to quote a higher price, particularly on notes with little payment history or a payer they cannot assess. Others ask for it as a matter of habit.
Before you accept a higher price with recourse, weigh it honestly. You are being paid extra to keep a slice of the risk you were trying to sell. Ask yourself whether you could repurchase the note if it came to that, and whether you would want it back in default. For most holders who sell to be free of the payer, a non-recourse sale at a lower price is the cleaner deal. A side-by-side check is part of comparing offers on your note.
Partial sales and recourse
In a partial purchase you sell a set run of payments and keep the rest of the note. Partials work differently from a full sale through us: a partial agreement can include recourse, so whether you would have to make up the buyer’s missed payments if the payer stops depends on the terms of that deal. Ask whether the offer carries recourse, and in what form, before you sign. Even without recourse you share the consequences of a default, because it affects the part of the note you still own, and the agreement sets how the buyer’s portion and yours are handled. Read what happens if the payer stops paying during a partial before you sign one.
Questions to ask before you sign
- Is this sale with or without recourse to me? Show me the clause.
- Is there any repurchase obligation, and what triggers it?
- If there is a buyback, for how long, and how is the repurchase price calculated?
- Which representations and warranties do I give, and how long do they last?
- Is any part of the price held back after closing, and on what conditions is it released?
A clear buyer will answer each in writing. Vague answers on recourse are a reason to slow down; see note buyer red flags for others. Because these clauses are legal promises that outlast the sale, it is worth having an attorney read the agreement, above all the recourse and warranty sections.
Is a non-recourse sale always the right choice?
Not always, but usually for sellers whose main goal is to stop carrying risk. The cost of non-recourse is built into the price: the buyer takes on the chance of default and prices for it. If you would rather keep that risk, keeping the note, or selling only part of it, may serve you better than a recourse sale. If you want to see a non-recourse figure for your note, ask for a free quote. It shows the balance, the buyer’s yield and the discount, and you are under no obligation to sell.
Related questions
Are notes bought through Note Brokering sold with recourse?
No. Notes bought through us are bought without recourse to the seller. If the payer stops paying after the sale, you owe nothing. You still give the usual warranties about the documents, the balance and the payment history.
Can I be liable after a non-recourse sale?
Yes, if a statement you made about the note was false, such as the balance, the payment history or an undisclosed lien. Non-recourse covers the payer's future behavior, not the accuracy of what you said.
Does recourse get me a higher price?
Sometimes. A buyer who can hand a failed note back is taking less risk. Weigh any extra against the chance of having to repurchase a defaulted note, possibly after the money is spent.
Where do I find the recourse terms?
In the note purchase agreement, under headings such as recourse, repurchase, buyback or guarantee. Have an attorney read those sections and the warranties before you sign.