This is part of the the trickling effect of the mortgage crisis. Lending has become more stringent as recent laws passed to protect citizens and banks altogether. It’s a double-edged sword. What would come next?

-Loans and Stuff Editors

After a decade of non-recourse commercial real estate loans for which a lender accepts the property itself as the only collateral, recourse loans are again becoming common.

If a borrower can’t pay off a non-recourse loan, he simply hands the building’s keys to the lender and walks away. The bank can take control of the building and sell it to pay off the loan The borrower’s other holdings, including personal assets such as homes and boats, remained intact.

Now, with falling valuations, a building could be worth less than the debt on it. Banks want a way to make up the difference, so they are asking borrowers to pledge other assets, including personal ones.

“Oftentimes, it’s either sign personally or you don’t get the loan,” said Donald Isken, a real-estate attorney at Morris, Nichols, Arsht & Tunnell LLP.

Source: The Wall Street Journal, Lingling Wei (07/20/2008)