Transaction terms guide
Direct answer
In a recourse sale, the dealer retains defined post-closing exposure, which may include performance shortfalls, early defaults, or repurchase obligations. In a non-recourse sale, ordinary credit performance generally transfers to the buyer, but the dealer can still remain responsible for breached representations, fraud, duplicate sales, invalid liens, missing documents, or other negotiated exceptions. Read the remedies, not only the label.
Recourse is a spectrum
| Structure | Ordinary credit loss | Common continuing seller exposure |
|---|---|---|
| Performance recourse | Some or much of the risk remains with seller under agreed tests | Early default, minimum yield, collection shortfall, scheduled repurchase |
| Limited recourse | Buyer assumes ordinary performance subject to stated exceptions | Breach of eligibility, document, title, lien, fraud, or representation terms |
| Non-recourse for credit performance | Buyer assumes ordinary customer payment risk | Representations, ownership, authority, enforceability, data accuracy, and fraud provisions may survive |
Actual contracts use their own definitions. A transaction called non-recourse can still contain reserves, indemnities, cure rights, or repurchase remedies. A transaction with limited repurchase language may transfer substantially all ordinary credit risk.
Terms that create post-closing exposure
- Representations and warranties: statements about ownership, balances, documents, compliance, liens, and account status.
- Eligibility breaches: an account did not meet the agreed cutoff-date requirements.
- Repurchase or substitution: the seller must buy back or replace a defective account.
- Reserve: part of the economics is retained in an account to cover defined losses or obligations.
- Holdback: part of the purchase price is paid later if conditions are satisfied.
- Indemnity: one party reimburses the other for specified claims, losses, or costs.
- Setoff: amounts owed by the seller can be netted against money otherwise payable to the seller.
Questions to ask about every offer
- What exact event creates a repurchase or payment obligation?
- Is the trigger a customer default, a document defect, or a breached statement?
- How long does the exposure survive after closing?
- Is liability capped by account, by pool, or in total?
- Does the dealer have a cure period or substitution right?
- Who decides whether a breach occurred, and what evidence is required?
- Can the buyer use a reserve, holdback, or setoff?
- What happens to payments, refunds, insurance proceeds, recoveries, and repossessed vehicles after the cutoff?
Compare net economics, not the headline price
A higher upfront percentage with a large reserve or broad performance recourse may produce less certain proceeds than a lower fixed price with ordinary credit risk transferred. Build a simple schedule showing cash at closing, money held back, seller-funded costs, maximum potential repurchase exposure, timing of releases, and the conditions required to receive deferred amounts.
Where the answer appears in the documents
Read the definitions of purchased receivables and eligible accounts, the purchase and assignment language, representations and warranties, repurchase remedies, indemnity, reserve and holdback provisions, servicing terms, default and termination sections, and the closing schedule. The OCC's loan-purchase guidance specifically calls for written documentation covering transfer, servicing, defaults, collections, and recourse arrangements.
Accounting and legal review
Whether a transfer receives sale treatment for accounting or tax purposes and whether a particular assignment is enforceable depend on the facts, documents, and applicable law. The buyer's business description is not a substitute for the dealer's accountant or attorney. Ask those advisers to review the final structure before the accounts are marked sold in the DMS.
Frequently asked questions
Does non-recourse mean the dealer can never owe anything after closing?
No. Non-recourse may describe ordinary credit performance while representations, fraud, ownership, title, lien, document, and other negotiated obligations remain.
Is a reserve the same as recourse?
A reserve is one mechanism that may support post-closing obligations. Its purpose, release timing, and permitted deductions must be read in the agreement.
Should the dealer accept the highest stated purchase percentage?
Compare cash at closing, holdbacks, reserves, fees, repurchase exposure, cure costs, and certainty. The highest headline percentage may not create the highest net proceeds.
Sources and related resources
- OCC Bulletin 2020-81: Risk Management of Loan Purchase Activities
- FDIC Advisory on Purchased Loans and Loan Participations
- SEC filing describing back-book, add-on, and forward-flow receivables
This guide explains a commercial review process and is not legal, tax, or accounting advice. Transaction requirements vary by agreement, account, and jurisdiction. Sources and software instructions were checked on September 26, 2026.