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

Jyh Bang Jou, Tan (Charlene) Lee

Research output: Contribution to journalArticlepeer-review

1 Scopus citations

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.

Original languageEnglish
Pages (from-to)263-272
Number of pages10
JournalInternational Review of Economics and Finance
Volume45
DOIs
StatePublished - 1 Sep 2016

Keywords

  • American options
  • Foreclosure sale
  • Real options
  • Statutory redemption

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