Statutory Right of Redemption and the Selling Price of Foreclosed Houses

Posted: 22 Aug 2015

See all articles by Bruce L. Gordon

Bruce L. Gordon

University of North Alabama

Daniel T. Winkler

University of North Carolina (UNC) at Greensboro - Department of Accounting and Finance

Date Written: August 20, 2015

Abstract

In some states properties are subject to a statutory right of redemption, which allows the previous homeowner and other parties to "redeem" the property for some designated period of time after the date of foreclosure. The statutory right of redemption exposes purchasers to the risk that they may lose their property ownership and may not be reimbursed for property improvements. This study examines a large sample of Alabama foreclosure transactions to determine the effect of the statutory right of redemption on the net selling price. The findings of a search of redeemed properties indicate that the actual number of property redemptions is quite small; however, the average economic loss is estimated to approach 40%. Also, an examination of 1,860 foreclosed properties from 2004-2012 shows that the right of redemption option influences the net selling price. For a property purchased with a $90,000 exercise price (foreclosed auction selling price), a 10% increase in the foreclosed auction price increases the net selling price by as much as $250 in 2007-2012. The effect of the redemption option is less during 2004-2006 but it is still statistically significant for the most distant time to expiry.

Keywords: Statutory right of redemption; Foreclosure; Real estate

Suggested Citation

Gordon, Bruce L. and Winkler, Daniel T., Statutory Right of Redemption and the Selling Price of Foreclosed Houses (August 20, 2015). Journal of Real Estate Finance and Economics, Vol. 51, No. 3, 2015. Available at SSRN: https://ssrn.com/abstract=2648320

Bruce L. Gordon

University of North Alabama ( email )

United States

Daniel T. Winkler (Contact Author)

University of North Carolina (UNC) at Greensboro - Department of Accounting and Finance ( email )

Greensboro, NC 27412
United States
336-256-0122 (Phone)

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