Non-Recourse Loan Clause

6 Replies

I am using a small amount (30K) of non-recourse financing on our next purchase closing July 20th.  This rental property will be held in our 401K Trust, which permits only non-recourse loans.

The lender is an individual, and I'm writing the mortgage and note.  Does anyone have a sample clause to add to the note and/or mortgage that meets 401K plan requirements for non-recourse.

The "base" documents are the Fannie standard forms for Florida, but have several sections deleted. I will have an attorney review the docs, she will catch any major inconsistencies for non-recourse, but is not a benefits plan expert.

Many of the samples I found include exculpatory language for fraud and waste, and I have no idea if these are permissible.

YMMV, I'm certainly not an attorney.   But what I have in for review by my attorney is the Fannie Multistate Note, Form 3200 with the following clause substituted for the basic Number 8:

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8. NON-RECOURSE OBLIGATIONS

Note Holder agrees that for payment of this Note it will look solely to the Pledged Collateral or such other collateral, if any, it may now or hereafter be given to secure the payment of this Note, and no other assets of Borrower shall be subject to levy, execution or other enforcement procedure for the satisfaction of the remedies of Note Holder, or for any payment required to be made under this Note.

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A Google search will find the full base Fannie document.

I also changed the heading line from "Note" to "Promissory Note" as suggested by Jay.

This clearly changes the intent to be non-recourse, which is all that's probably required to survive IRS or DOL review.   I don't think too many small 401K's get review, but if the total plan liabilities began to equal or exceed assets on the annual Form 5500 reporting, that might be a red flag?  In this case, I expect to have repayed the note by the end of year anyway.