Explanation:
A non-recourse residential mortgage loan is a type of loan where the lender's only recourse in case of default is to seize and sell the property that serves as collateral for the loan.
Key points:
Limited recourse: The lender cannot pursue the borrower's other assets or income to recover any deficiency if the sale of the property doesn't cover the outstanding mortgage balance.
Property as sole collateral: The property itself is the only security for the loan. If the property value declines below the loan amount, the lender bears the loss.
Contrast with recourse loans: In recourse loans, lenders can seek deficiency judgments against borrowers and pursue their other assets if the foreclosure sale doesn't cover the full loan amount.
Risk allocation: Non-recourse loans shift more risk to lenders, which is why they often have stricter underwriting standards and may require larger down payments.
Why option B is correct: It accurately describes that the lender can only use the property to recover the outstanding mortgage balance, which is the defining characteristic of non-recourse loans.
Why option A is incorrect: This is too extreme - lenders CAN recover the outstanding balance, but only through the property.
Why option C is incorrect: This describes a recourse loan, not a non-recourse loan.
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A non-recourse residential mortgage loan:
A
does not allow the lender to recover the outstanding mortgage balance.
B
only allows the lender to use the property to recover the outstanding mortgage balance.
C
permits the lender to seek recovery of the outstanding mortgage balance from the borrower's other assets.