I agree with Bobby and Patiently, and disagree that the “intent” of a nonrecourse loan is to provide the buyer an out only in the event of hardship or catastrophic event. Legally, a nonrecourse loan provides the debtor the choice of either paying off the debt or forfeiting the property. Thus, at all times, a nonrecourse transaction provides the obligor the option to return the property to the creditor in total satisfaction of the obligation. This is not an amorphous concept that applies only in certain circumstances, nor is it any secret in the banking/mortgage industry.

Thus, in a nonrecourse situation, it is entirely incumbent upon the creditor to ensure that the collateral protecting the obligation is sufficient. While it certainly may be foolhardy to purchase property beyond one’s means, from a legal perspective the sole responsibility for loss falls upon the party loaning money without adequate security. The person walking away from a nonrecourse loan that has gone upside down is merely exercising his/her legal rights under the contract.