A mortgage broker is arranging financing for 'Alpha Innovations', a tech company purchasing its own office building in Toronto. The lender has presented a mortgage with a 'non-recourse' clause. What does this specifically imply for 'Alpha Innovations' as the borrower in the event of default?

Question: A mortgage broker is arranging financing for 'Alpha Innovations', a tech company purchasing its own office building in Toronto. The lender has presented a mortgage with a 'non-recourse' clause. What does this specifically imply for 'Alpha Innovations' as the borrower in the event of default?

Answer options: ✅ The lender may only pursue the subject property as collateral, not other assets of 'Alpha Innovations'.

• The lender can pursue both the subject property and the personal assets of 'Alpha Innovations' shareholders.
• The lender has recourse to all corporate assets of 'Alpha Innovations', but not personal assets.
• The lender cannot seize the property, only sue 'Alpha Innovations' for outstanding debt.

Correct answer: The lender may only pursue the subject property as collateral, not other assets of 'Alpha Innovations'.

Explanation: In a non-recourse loan, the lender's claim is limited to the collateralized property itself. This means that in the event of default, the lender cannot pursue other assets of the borrower (Alpha Innovations) to recover any shortfall, offering more protection to the borrower than a recourse loan.