Which term refers to the situation when a borrower is not personally liable for the original loan?

The situation where a borrower is not personally liable for the original loan is defined as a nonrecourse loan. In this type of loan agreement, the lender's only recourse in case of default is to seize the collateral backing the loan, rather than pursuing the borrower for any deficiency that may remain after selling the collateral. This means that if the value of the collateral does not cover the outstanding debt, the lender cannot go after the borrower's other personal assets or income, offering a layer of protection to the borrower.

This characteristic makes nonrecourse loans particularly appealing in certain scenarios, such as real estate investments, where the property itself serves as the collateral. In essence, it allows borrowers to limit their financial risk to the assets pledged as collateral, rather than their overall financial standing.

The other terms provided do not encapsulate this concept. A sole proprietorship refers to a type of business entity and does not directly relate to loan liability. A shared liability loan implies that multiple parties are responsible for the repayment, which contradicts the idea of having no personal liability. A secured loan is one where collateral is provided, but it does not specify personal liability status; borrowers may still be personally liable for the debt even with collateral involved.

Understanding this distinction is important