Partial recourse burns off in stages, typically from 100 percent at origination to 25 to 50 percent at construction completion, then to 0 percent at stabilization. Each step is gated by tests the borrower must satisfy with documented proof: certificate of occupancy , lien-free title, DSCR , debt yield , and occupancy thresholds.
What triggers each step?
First burn-off: certificate of occupancy plus lien-free title plus payment of contractor retainage. Second burn-off: stabilization tests met for a stated period (typically 3 to 6 months of trailing operating performance), confirmed by lender review of operating statements, rent rolls, and updated appraisals.
What if a test is missed?
Recourse stays in place at the prior level until the test is met. Sponsors who miss tests should engage the lender early to negotiate test extensions or modified thresholds, most lenders grant reasonable accommodations on legitimate slippage but require documentation and sponsor commitment to performance.
Sources
- Quarterly Survey of Commercial/Multifamily Mortgage Bankers Originations · Mortgage Bankers Association · 2026-Q1
- Quarterly Banking Profile · Federal Deposit Insurance Corporation · 2026-Q1