Non-Recourse Debt - Why do you need net worth?

[Charlie Cameron]

I’ve been researching Fannie Mae smaller apartment loans. I haven’t been able to figure this out: if the debt is non-recourse, why then does the total net worth of the borrowers have to exceed the loan amount? Is there ANY collateral for the lender besides the property itself?

Can anyone point me to related references? I’ve read about a dozen apartment investing books and listened to hundreds of podcasts. I’m using a local portfolio lender for my apartments currently as the loan amounts aren’t large enough for agency debt.

Thank you for your help! Love this community.

[Greg Dickerson]

@Charlie Cameron Not all loans are non-recourse and not all borrowers are eligible.

Non-recourse loans are offer to qualified borrowers only based on experience, net worth and the asset and loan amount. The lender wants to make sure you will not default hence the net worth requirement. 

Non-recourse means taking back the property itself is the only recourse the lender has in the event of a default, however, they will have a "bad boy clause" or "guarantee" meaning that if you do something fraudulent, illegal, or certain defined bad acts they will come after you personally for liabilities and deficiencies in the event of a default.