What does a deficiency judgment primarily protect?

A deficiency judgment primarily protects the lender's investment. This legal remedy allows the lender to pursue the borrower for any remaining balance owed on a loan after a foreclosure sale. When a borrower defaults and the property is sold at a foreclosure auction, it often sells for less than the outstanding mortgage amount. The deficiency judgment enables the lender to recover the difference, thereby safeguarding their financial interests and ensuring they are compensated for their loss on the loan.

This concept is essential in real estate transactions involving financing because it ensures that lenders can reclaim some losses in the event that the value of the property does not cover the debt owed. Understanding how deficiency judgments work is crucial for both lenders and borrowers, as it impacts the risk associated with taking out a mortgage and the potential liabilities borrowers face when they cannot meet their obligations.