The HUD 232 Program and Loan Recourse Provisions
If a loan is non-recourse, a lender cannot go after a borrower's personal assets if they default on the loan. Instead, they can only attempt to repossess the loan collateral. In multifamily real estate loans, this is typically a piece of property.
Fortunately for borrowers, HUD 232 loans are fully non-recourse. This means that their personal property is usually safe, even if they face a significant financial setback that leads them to default on the loan for their skilled nursing, assisted living, or memory care facility.
However, this doesn't mean that a HUD 232 borrower can do anything and get away with it. Just like most other non-recourse loans, HUD 232 loans have "bad boy" carve-out provisions. This means that, if a borrower is shown to be engaging in fraud or engages in other bad acts (sometimes including 'intentional' bankruptcy), the loan will become full-recourse. In that case, the borrower can go after the borrower's personal assets in order to recoup their losses.