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An Economic Theory of Mortgage Redemption Laws

Author

Listed:
  • Matthew J. Baker

    (U.S. Naval Academy)

  • Thomas Miceli

    (University of Connecticut)

  • C. F. Sirmans

    (University of Connecticut)

Abstract

Redemption laws give mortgagors the right to redeem their property following default for a statutorily set period of time. This paper develops a theory that explains these laws as a means of protecting landowners against the loss of non-transferable values associated with their land. A longer redemption period reduces the risk that this value will be lost but also increases the likelihood of default. The optimal redemption period balances these effects. Empirical analysis of cross-state data from the early twentieth century suggests that these factors, in combination with political considerations, explain the existence and length of redemption laws.

Suggested Citation

  • Matthew J. Baker & Thomas Miceli & C. F. Sirmans, 2004. "An Economic Theory of Mortgage Redemption Laws," Working papers 2004-26, University of Connecticut, Department of Economics.
    • Handle: RePEc:uct:uconnp:2004-26
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    References listed on IDEAS

    as
    1. Hynes, Richard M & Malani, Anup & Posner, Eric A, 2004. "The Political Economy of Property Exemption Laws," Journal of Law and Economics, University of Chicago Press, vol. 47(1), pages 19-43, April.
    2. Philippe Aghion & Patrick Bolton, 1992. "An Incomplete Contracts Approach to Financial Contracting," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 59(3), pages 473-494.
    3. Miceli, Thomas J & Sirmans, C F, 1995. "The Economics of Land Transfer and Title Insurance," The Journal of Real Estate Finance and Economics, Springer, vol. 10(1), pages 81-88, January.
    4. Jaffe, Austin J & Sharp, Jeffery M, 1996. "Contract Theory and Mortgage Foreclosure Moratoria," The Journal of Real Estate Finance and Economics, Springer, vol. 12(1), pages 77-96, January.
    5. Matthew Baker & Thomas Miceli & C. F. Sirmans & Geoffrey K. Turnbull, 2001. "Property Rights by Squatting: Land Ownership Risk and Adverse Possession Statutes," Land Economics, University of Wisconsin Press, vol. 77(3), pages 360-370.
    6. Alston, Lee J, 1984. "Farm Foreclosure Moratorium Legislation: A Lesson from the Past," American Economic Review, American Economic Association, vol. 74(3), pages 445-457, June.
    7. repec:rus:hseeco:70502 is not listed on IDEAS
    8. Lynn Fisher, 2006. "Renegotiation in the Common Law Mortgage and the Impact of Equitable Redemption," The Journal of Real Estate Finance and Economics, Springer, vol. 32(1), pages 61-82, February.
    9. Friedman, Gerald, 1985. "The Labor History Reader. Edited by Daniel J. Leab. Champaign: University of Illinois Press, 1985. The Working Class in American History. Pp. xx, 470. $29.95 cloth, $12.50 paper," The Journal of Economic History, Cambridge University Press, vol. 45(4), pages 1013-1014, December.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Bruce Gordon & Daniel Winkler, 2015. "Statutory Right of Redemption and the Selling Price of Foreclosed Houses," The Journal of Real Estate Finance and Economics, Springer, vol. 51(3), pages 365-397, October.
    2. Lynn Fisher & Abdullah Yavas, 2007. "The Value of Equitable Redemption in Commercial Mortgage Contracting," The Journal of Real Estate Finance and Economics, Springer, vol. 35(4), pages 411-425, November.
    3. James A. Brox, 2010. "Canadian Banks and the North American Housing Crisis," Chapters, in: Benton E. Gup (ed.), The Financial and Economic Crises, chapter 3, Edward Elgar Publishing.
    4. Andra Ghent, 2014. "How Do Case Law and Statute Differ? Lessons from the Evolution of Mortgage Law," Journal of Law and Economics, University of Chicago Press, vol. 57(4), pages 1085-1122.
    5. Lynn Fisher, 2006. "Renegotiation in the Common Law Mortgage and the Impact of Equitable Redemption," The Journal of Real Estate Finance and Economics, Springer, vol. 32(1), pages 61-82, February.
    6. Brox, James A., 2009. "Too Small to Fail: Canadian Banks, Regulation, and the North American Financial Crisis," The Journal of Economic Asymmetries, Elsevier, vol. 6(2), pages 31-46.
    7. Jou, Jyh-Bang & Lee, Tan (Charlene), 2016. "How does statutory redemption affect a buyer's decision at the foreclosure sale?," International Review of Economics & Finance, Elsevier, vol. 45(C), pages 263-272.
    8. Zhu, Shuang & Pace, R. Kelley, 2015. "Factors underlying short sales," Journal of Housing Economics, Elsevier, vol. 27(C), pages 60-70.

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    JEL classification:

    • K11 - Law and Economics - - Basic Areas of Law - - - Property Law

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