Abstract

http://ssrn.com/abstract=1527038
 
 

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Forced Sale Risk: Class, Race, and The 'Double Discount'


Thomas W. Mitchell


University of Wisconsin Law School

Stephen Malpezzi


University of Wisconsin at Madison

Richard K. Green


University of Southern California - Lusk Center for Real Estate

December 22, 2009

Florida State University Law Review, Vol. 37, 2010
Univ. of Wisconsin Legal Studies Research Paper No. 1102

Abstract:     
What impact does a forced sale have upon a property owner's wealth? And do certain characteristics of a property owner such as whether they are rich or poor or whether they are black or white, tend to affect the price yielded at a forced sale? This Article addresses arguments made by some courts and legal scholars who have claimed that certain types of forced sales result in wealth maximizing, economic efficiencies. The Article addresses such economic arguments by returning to first principles and reviewing the distinction between sales conducted under fair market value conditions and sales conducted under forced sale conditions. This analysis makes it clear that forced sales of real or personal property are conducted under conditions that are rarely likely to yield market value prices. In addition, the Article addresses the fact that judges and legal scholars have utilized a flawed economic analysis of forced sales in cases that often involve property that is owned by low- to middle-class property owners in part because those who are wealthier own their property under more stable ownership structures or utilize private ordering to avoid the chance that a court might order a forced sale under the default rules of certain common ownership structures. The Article also raises the possibility for the first time that the race or ethnicity of a property owner may affect the sales price for property sold at a forced sale, resulting in a "double discount," i.e. a discount from market value for the forced sale and a further discount attributable to the race of the property owner. If minorities are more susceptible to forced sales of their property than white property owners or if there does exist a phenomenon in which minorities suffer a double discount upon the sale of their property at a forced sale, then forced sales of minority-owned property could be contributing to persistent and yawning racial wealth gaps.

Number of Pages in PDF File: 71

Keywords: law and economics, forced sale, valuation, market value, partition sale, liquidation, bankruptcy, eminent domain, racial wealth gap, partnership dissolution, foreclosure, just compensation, housing discrimination, distressed property, wealth impact, non-economic interest

JEL Classification: K11, D31, K35, Q15, R21

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Date posted: December 27, 2009 ; Last revised: September 27, 2010

Suggested Citation

Mitchell, Thomas W. and Malpezzi, Stephen and Green, Richard K., Forced Sale Risk: Class, Race, and The 'Double Discount' (December 22, 2009). Florida State University Law Review, Vol. 37, 2010; Univ. of Wisconsin Legal Studies Research Paper No. 1102. Available at SSRN: http://ssrn.com/abstract=1527038

Contact Information

Thomas W. Mitchell (Contact Author)
University of Wisconsin Law School ( email )
975 Bascom Mall
Madison, WI 53706
United States
(608) 890-1237 (Phone)
HOME PAGE: http://law.wisc.edu/profiles/tmitchell@wisc.edu
Stephen Malpezzi
University of Wisconsin at Madison ( email )
5257 Grainger Hall
Madison, WI 53706
United States
608-262-6007 (Phone)
608-263-0477 (Fax)
Richard K. Green
University of Southern California - Lusk Center for Real Estate ( email )
Los Angeles, CA 90089
United States
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