recourse

Primary tabs

 

Recourse has two possible legal meanings:

  1. Recourse refers to the pursuit and procedure of enforcing one’s rights. For example, Justice Sotomayor, dissenting in the 2020 U.S. Supreme Court case, Our Lady of Guadalupe School v. Morrissey-Berru, takes issue with the fact that, in her view, the majority’s opinion means that if employees were classified as “ministers,” they “could be fired for any reason, whether religious or nonreligion, benign or bigoted, without legal recourse.”
  2. A type of debt where the creditor can collect what is owed on the debtor’s personal assets even after taking collateral, as opposed to a nonrecourse debt where the creditor may only look to the collateral. For example, the Seventh Circuit in Racine v. Commissioner classified a loan as recourse debt where the borrower “was personally liable for the full amount.” A creditor does not have free range to pursue the debtor’s personal assets, however, and must look first to the collateral. Only if the collateral does not satisfy the debt may the creditor pursue the debtor’s personal assets, such as by garnishing wages or levying bank accounts. To determine whether a loan is recourse or nonrecourse, courts will look to the language of the debt instrument. For example, the Southern District of New York in Veleron Holding v. Stanley found that a debt was a recourse loan by looking to parts of the credit agreement. The court pointed to one section which stated that the creditor, “may ... bring suit at law, in equity or otherwise, for ... the recovery of any judgment for any and all amounts due in respect of the Obligations.” The court interpreted this to mean that the creditor may sue the borrower for “the full amount due under the loan, including any deficiency after the sale of the pledged collateral.” In some instances, however, whether a debt is recourse or nonrecourse does not alter the treatment of the debt. For example, in Crane v. Commissioner, the U.S. Supreme Court found that a taxpayer realized gain on the sale of a property when the buyer assumed the seller’s mortgage on the sold property, regardless of whether the mortgage was recourse or nonrecourse. 

[Last updated in September of 2021 by the Wex Definitions Team]