26 Pages Posted: 19 Dec 2006
Date Written: December 2006
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.
Keywords: Mortgage redemption, default, subjective value
JEL Classification: G21, K11
Suggested Citation: Suggested Citation
Baker, Matthew J. and Sirmans, C. F. and Miceli, Thomas J., An Economic Theory of Mortgage Redemption Laws (December 2006). Available at SSRN: https://ssrn.com/abstract=952503 or http://dx.doi.org/10.2139/ssrn.952503