How does a non-recourse loan work?

[David B.]

How does a non-recourse loan work with an IRA or Solo 401K? I understand that the bank requires a larger down payment than for a normal mortgage because they can't recover money from the IRA in the event of a foreclosure.

But I don't see how that protects the bank. Say my IRA puts $40K down and the bank $60K on a $100K property. What happens if I default on the loan, and the bank is stuck with the property? Since they can't keep the IRA money, would they have to refund that $40k to my IRA? That would mean they are into the house for a total of $100k, defeating the purpose of me (the IRA) putting any money down at all.

I'm sure I'm missing something obvious.

David