What might a Recourse Clause entail when a borrower defaults?

A recourse clause in a loan agreement allows the lender to pursue legal action against the borrower if the borrower defaults on their loan. This means that the lender can recover the owed amount by resorting to the borrower's assets or income, beyond just seizing the collateral. When a default occurs, a recourse clause could lead to additional expenses for the lender, such as court costs incurred during the process of collecting the outstanding debt. Therefore, the option involving court costs is aligned with the implications of a recourse clause.

The other options don’t accurately reflect what a recourse clause would entail. Waiver of all penalties would imply that the lender cannot impose penalties despite the default, which contradicts the purpose of having recourse. Similarly, a reduction in the loan balance or an extension of the loan term would generally not be characteristics associated with a recourse clause, as these actions may typically involve negotiation rather than being dictated by a default situation under a recourse clause.