Liability under the Construction Loan
It is typical for a construction loan to be recourse. The borrower personally guaranties the debt. It is possible, although rare, to obtain a nonrecourse construction loan or to negotiate a cap on your personal exposure. Both the nonrecourse feature and the cap are typically a function of the amount of the borrower's equity in the project. The greater the equity, the more likely the lender will bend on this issue.
Furthermore, a distinction must be made between a guaranty of completion and a guaranty of payment. Under a guaranty of completion, the borrower is personally liable to complete the project lien free. A guaranty of payment goes beyond this obligation and obligates the borrower to be personally responsible that the loan is paid timely in accordance with the contractual agreement with the lender.
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