Can Closer Lender-Borrower Relations Save Homes during Foreclosure?

Abstract

This study contributes to the extant research on foreclosure by focusing on the relevance of lender-borrower relations. Donald Black's theory of the behaviour of law is assessed by examining the association between revocation of compulsory sale by the lender and four different variables, proxying variations in the scope, history, and frequency of contact between the lender and the borrower. This association is modelled in a logistic regression framework of micro-level data on compulsory sale and mortgage borrowers in Sweden from 2010 to 2014. The results indicate that there are more revocations in cases that are deferred by the lender. There are fewer revocations in cases with digital banks and when there are also other creditors than the lender. These empirical findings partially confirm Donald Black's propositions about the association between the quantity of law and relational distance, and point at the importance of lender-borrower relations in explaining foreclosure outcomes.