Recourse and non-recourse commercial loans in Arizona

Recourse means a person, not just the real estate, stands behind the debt. If the property is sold for less than the loan, the lender may sue the borrower or a guarantor for the shortfall. Non-recourse, in commercial lending, usually means the lender agrees to look to the property, and a separate guaranty springs into personal liability only for listed acts. Those acts are often called bad-boy carve-outs: fraud, a bankruptcy filing, unpaid taxes, or misapplied rents are typical examples. The list is whatever the guaranty says. Non-recourse does not mean nobody can ever be liable. Capital Market Funds will not promise a non-recourse execution. The lender's documents do, or they do not.

Life companies, CMBS, and agency apartment loans are often marketed as non-recourse with those carve-outs. Banks and credit unions more often want a full guaranty, especially on a smaller or owner-occupied commercial building. Those are patterns, not a menu we control. A term sheet that says 'non-recourse' and a guaranty that is eight pages long need to be read together, by counsel, before anyone treats the marketing word as the deal.

What A.R.S. 33-814 actually covers

Arizona deeds of trust are often enforced by a trustee's sale rather than a court foreclosure. A.R.S. 33-814(A), as posted by the Arizona Legislature, says that within ninety days after the sale an action may be maintained to recover a deficiency against any person directly, indirectly, or contingently liable on the contract, including a guarantor. The judgment is the amount owed as of the sale, minus the higher of the sale price or the fair market value the court finds. Subsection D says that if no action is maintained within those ninety days, the sale proceeds are deemed to be in full satisfaction of the obligation, with the exceptions the statute lists.

Subsection G is the anti-deficiency limit people hope applies to every property. It says that if trust property of two and one-half acres or less, limited to and used as a single one-family or a single two-family dwelling, is sold under the trustee's power of sale, no action may be maintained for the difference between the sale price and the debt. A commercial building is not that dwelling. Apartments, retail, industrial, and office collateral are outside the sentence. This paragraph is a reading of the posted statute so an owner is not surprised. It is not a legal opinion about your deed of trust, your guaranty, or whether a sale has already happened. An Arizona real estate attorney applies the section to the document. We arrange loans. We do not try deficiency cases.

How to ask the question on a new loan

Ask who signs the carve-out guaranty, which acts spring full recourse, and whether a voluntary bankruptcy is one of them. Ask whether the guarantor is liable for losses only, or for the entire debt, if a carve-out is triggered. Those are different dollars. Ask whether the non-recourse clause survives a transfer. None of those answers should come from a blog, including this one.

The financing pages that often discuss the structure are life company loans, Arizona CMBS, and Arizona bank financing. A refinance that replaces a recourse bank loan with a non-recourse quote is still a new underwriting, described on Arizona commercial refinance. Capital Market Funds is not a Fannie Mae DUS lender. Agency non-recourse, when it is offered, is the executing lender's form. License on this firm: Arizona CMB-1047342, NMLS 1445066.