Tuesday, January 9, 2007
Matthew J. Baker (U.S. Naval Academy), C.F. Sirmans (University of Connecticut) and Thomas J. Miceli (University of Connecticut) have posted An Economic Theory of Mortgage Redemption Laws on SSRN. Here's the 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.
[Comments are held for approval, so there will be some delay in posting]