How does statutory redemption affect a buyer's decision at the foreclosure sale?

Jyh-Bang Jou and Lee, Tan (Charlene)

International Review of Economics & Finance, 2016, vol. 45, issue C, 263-272

Abstract: About one third of states in the U.S. offer the right of statutory redemption to a defaulting mortgagor who can reclaim his/her foreclosed property within a certain period of time, usually lasting for one month to one year. We derive a closed-form solution of a buyer's decision at the foreclosure sale, which predicts that the buyer is less likely to purchase in states with statutory redemption than in states without it. In states with statutory redemption, a buyer is less likely to purchase if the redemption period lasts longer or housing price inflation fluctuates more severely because the buyer will then be hurt more by the mortgagor who owns more valuable repurchasing option.

Keywords: American options; Foreclosure sale; Real options; Statutory redemption (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:45:y:2016:i:c:p:263-272

DOI: 10.1016/j.iref.2016.06.006

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