# Without Recourse Explained: Key Differences From With Recourse

## What Is Without Recourse?

"Without recourse" is a term used in financial agreements to indicate that one party cannot seek repayment or legal action against the other if a borrower defaults. In these agreements, the risk of default shifts from the seller to the buyer.

For example, when a lender sells a [promissory note](https://www.investopedia.com/terms/p/promissorynote.asp) "without recourse," the buyer takes on the full risk if the borrower fails to pay. Similarly, in certain sales agreements or check endorsements, "without recourse" means the endorser isn't liable if payment isn't made. This contrasts with "with recourse" agreements, where the seller or endorser can still be held responsible if the borrower doesn't fulfill their obligation.

### Key Takeaways

*   Without recourse means that the buyer of a promissory note, or lender, assumes the risk of default.
*   When a financial instrument contains the words "without recourse," the endorser is released from future claims.
*   Sales agreements that are made without recourse create a [caveat emptor](https://www.investopedia.com/terms/c/caveatemptor.asp) situation.

## Recourse Financing: How It Works and Its Implications

Financing can be extended [with or without recourse](https://www.investopedia.com/terms/r/recourse-loan.asp). In "with recourse" financing, if the lender can't collect payment from the main party, they can ask the borrower to pay. Recourse may allow the lender to seize not only pledged collateral, but also deposit accounts, and sources of income.

In "without recourse" financing, the lender accepts the risk if the [obligor](https://www.investopedia.com/terms/o/obligor.asp) doesn't pay. The lender takes these risks directly and cannot seek payment or seize [personal assets not specified in the debt contract](https://www.investopedia.com/terms/l/limitedrecoursedebt.asp).  

## Sales Agreements Without Recourse: What Buyers Need to Know

"Without recourse" means no [liability](https://www.investopedia.com/terms/l/liability.asp). In such sales, the buyer bears all risks.

This happens with "as is" sales, where the buyer can't claim compensation if the item fails. In a "with recourse" sale, the seller is responsible if the item is defective. The buyer can demand a replacement or refund.

## Banking Transactions Without Recourse: Key Considerations

A financial instrument labeled "without recourse" releases the endorser from future claims, such as check bounces.

For example, assume Alice makes out a check to Bob. The payee, Bob, decides to pay off his debt to Maggie by endorsing the check, which involves writing his name on the back exactly as it appears on the front of the check. Signing the back of the check makes it negotiable, allowing money transfer as ordered. In addition, Bob adds “without recourse” on the back of the check. The endorser, Bob, will not assume any responsibility for paying the check if it is returned for insufficient funds. If Alice’s bank refuses to pay Maggie’s bank the check amount due to insufficient funds in Alice’s account, Maggie cannot demand payment from Bob.

A promissory note is a [debt instrument](https://www.investopedia.com/terms/d/debtinstrument.asp), like a mortgage loan, that contains a written promise by the buyer to pay the seller a definite sum of money. If the loan is secured "without recourse," the lender often uses the mortgaged property as collateral. The lender cannot hold the buyer liable, however, will instead recover the collateral.

Without recourse is evident in [certificates of deposit](https://www.investopedia.com/terms/c/certificateofdeposit.asp) (CDs) and securities where the seller is not required to [indemnify](https://www.investopedia.com/terms/i/indemnity.asp) the investor for any losses suffered, such as those caused by market fluctuations.

## What Does It Mean to Assign Without Recourse?

Loans are often sold or transferred among lenders. When a loan is assigned to a new lender, neither the borrower nor the new loan holder can hold the first loan originator liable for any loan-related issues.

## What Does Without Recourse Mean in Real Estate?

Without recourse, or non-recourse debt is a type of loan secured by collateral, such as real estate cited on a mortgage loan. If the borrower defaults, the issuer can seize the collateral but cannot seek further compensation from the borrower.

## How Do I Endorse a Check Without Recourse?

Endorsing a check and adding "without recourse" to the signature means that the endorser assumes no responsibility if the check bounces for insufficient funds.

## The Bottom Line

"Without recourse" simply means the buyer or lender takes on all the risk if the borrower or primary party fails to pay, leaving the seller or lender free of any future liability. This is different from "with recourse" agreements, where the original party can still be pursued for repayment in the event of default.

You'll often see "without recourse" in promissory notes, sales agreements, or other financial instruments, as well as in sectors like real estate lending or banking transactions tied to collateral.

While these arrangements can make deals more attractive for sellers or lenders, they put the burden of risk on the buyer or investor, making it important to carefully weigh potential losses before entering such agreements.