An example of a no-use note is a personal cheque written by A, the manufacturer, to B, the beneficiary. B, in turn, repays a debt to C by approving the cheque and adding the non-recourse rate. If A`s bank refuses to pay C the amount of the cheque because A does not have enough funds in his current account, C cannot demand payment from B. C must try to collect A`s money. Most loans are granted using the recourse language included in the loan document. The wording specifies the recourse measures that the lender may take, as well as any restrictions. Suppose Alice writes Bob a check. The beneficiary, Bob, decides to repay his debts to Maggie by approving the check, where her name is written on the back exactly as it appears on the front of the check. Once the payment of the check is signed, it becomes negotiable and allows the transfer of the money ordered via the check. In addition, Bob adds “no recourse” to the back of the cheque. The endorser, Bob, assumes no responsibility for the payment of the cheque if it is returned due to insufficient funds. If Alice`s bank refuses to pay the amount of the check to Maggie`s bank because there is not enough money in Alice`s account, Maggie cannot demand payment from Bob. Lenders also have “assignment without recourse” clauses in their purchase agreements.
When an original lender sells a car loan to another financial company, they may include a “no recourse” clause to ensure they never have to deal with problems with the loan again. This means that a financial company buying a car loan must carefully consider the terms and situations of the loan, as the original lender essentially has a “no return” policy. If the loan was granted to a bad candidate or had recovery problems, the problem lies irrevocably with the buyer. In today`s financial and credit landscape, lenders – including auto loan lenders – sell and trade loans as assets and investments. Loan sales can be made in different ways. One form of transaction is “non-recourse attribution,” which means that after the loan is sold or transferred, neither the borrower nor the new loan holder can hold the original lender responsible for anything. Recourse provides lenders with the legal means to seize a borrower`s assets if the borrower is in default of a debt. If the debt is a complete remedy, the borrower is responsible for the total amount of the debt, even if it exceeds the value of the secured asset.