Question

Which of the following liabilities would be considered nonrecourse? a. Credit card debt. b. All of these are non-recourse liabilities. c. A $20,000 real estate loan which allows the bank to take the real estate if the taxpayer stops making payments on the loan. d. A bank loan for which the taxpayer is personally liable.

Answer 1

The correct answer is letter "C": A $20,000 real estate loan which allows the bank to take the real estate if the taxpayer stops making payments on the loan.

Step-by-step explanation:

The non-recourse debt limits the lender to what he can and can not pursue collateral. The borrower normally puts up property as the collateral in a nonrecourse loan. This kind of loan favors the borrower who does not take personal responsibility for the loan. In the case that the borrower defaults, the lender can only redeem the collateral and will not repay the debt in full.

Therefore, a $20,000 real estate loan which allows the bank to take the real estate if the taxpayer stops making payments on the debt, is an example of a nonrecourse loan.