Recourse on a construction loan typically burns off in stages tied to completion and stabilization milestones, DSCR , debt yield , and occupancy thresholds. Partial burn-off at completion (e.g. from 100 percent to 50 percent recourse) is common, with full burn-off triggered when stabilization tests are met.
What triggers partial burn-off?
Completion of construction (certificate of occupancy issued), payment of all hard-cost retainage, and lien-free title supported by an updated lender title endorsement. At that point, sponsor recourse is typically reduced to a stated percentage of remaining principal.
What triggers full burn-off?
Stabilization tests, most often a 1.20 to 1.30x DSCR over a stated period (3 to 6 months), a debt yield of 7.5 to 9.0 percent, and an occupancy threshold appropriate to the asset class. Once met, recourse falls to standard non-recourse with bad-boy carve-outs only.
Sources
- Quarterly Survey of Commercial/Multifamily Mortgage Bankers Originations · Mortgage Bankers Association · 2026-Q1
- Quarterly Banking Profile · Federal Deposit Insurance Corporation · 2026-Q1