An Economic Theory of Mortgage Redemption Laws
Matthew J. Baker
United States Naval Academy - Department of Economics
C. F. Sirmans
Florida State University - Department of Risk Management, Insurance, Real Estate & Business Law
Thomas J. Miceli
University of Connecticut - Department of Economics
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.
Number of Pages in PDF File: 26
Keywords: Mortgage redemption, default, subjective value
JEL Classification: G21, K11
Date posted: December 19, 2006
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