The Legal Environment and the Choice of Default Resolution Alternatives: An Empirical Analysis

Richard Phillips and Eric Rosenblatt

Journal of Real Estate Research, 1997, vol. 13, issue 2, 145-154

Abstract: In addition to standard foreclosure, three other methods of resolution for mortgage defaults are available: bankruptcy protection, surrender of deed to the lender, and pre-foreclosure sale. This paper develops a model that specifies the choice of resolution method as a function of the state-specific legal environment and local area economic conditions. A large national data set is used to estimate a multinomial logit choice model for the 1987 to 1991 period. The results indicate that the choice of default resolution alternative is sensitive to the legal environment. The results imply that selected legal reforms will tend to improve the efficiency of the default resolution process.

Date: 1997
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DOI: 10.1080/10835547.1997.12090870

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