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An Economic Theory of Mortgage Redemption Laws

26 Pages Posted: 19 Dec 2006  

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

Date Written: December 2006

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.

Keywords: Mortgage redemption, default, subjective value

JEL Classification: G21, K11

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

Matthew J. Baker (Contact Author)

United States Naval Academy - Department of Economics ( email )

589 McNair Road
Annapolis, MD 21402
United States
410-293-6890 (Phone)
410-293-6899 (Fax)

C. F. Sirmans

Florida State University - Department of Risk Management, Insurance, Real Estate & Business Law ( email )

Tallahasse, FL 32306
United States
850 644-4076 (Phone)

HOME PAGE: http://www.cob.fsu.edu/rmi

Thomas J. Miceli

University of Connecticut - Department of Economics ( email )

365 Fairfield Way, U-1063
Storrs, CT 06269-1063
United States
860-486-5810 (Phone)
860-486-4463 (Fax)

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