The Paradox of Judicial Foreclosure: Collateral Value Uncertainty and Mortgage Rates

Judging Judicial Foreclosure

“…A second strand of articles reaches a contrary conclusion. Harrison and Seiler's (2015) sample of almost 27,000 rate quotes presents findings at odds with Meador, Schill, Curtis, and Pence. Controlling for local economic conditions and, in some models, focusing on cities on either side of a judicial/non-judicial border, Harrison and Seiler find that-whereas borrower protections such as a statutory right of redemption, anti-deficiency-judgment laws, and a lengthy foreclosure process are associated with higher rate quotes-rate quotes are lower in states that require judicial foreclosure.…”

“…Because there is little additional recourse available to a lender post-default for each additional month in which the borrower does not make payments, the borrower may continue to live in the house while withholding additional mortgage payments with few associated marginal costs. By contrast, longer procedural periods in judicial-foreclosure states impose costs on lenders, who must maintain the property and pay property taxesor be faced a dilapidated property with tax liens post-foreclosure (Harrison & Seiler, 2015). By one estimate, foreclosures cost an average of $3,112 in judicial-foreclosure states but only $2,269 in other states (Demiroglu, et al 2014).…”

“…Because notice requirements elongate the timeframe for foreclosureand delinquent borrowers may remain their homes regardless of whether they principal and interest payments to their lenders during this notice periodmore detailed notice requirements increases lenders' losses on foreclosed properties (Cordell & Lambie-Hanson, 2016). Lenders, in turn, pass some of these losses on to borrowers in the form of higher mortgage costs (Harrison & Seiler, 2015).…”

“…Second, 27 states and the District of Columbia provide a right for delinquent borrowers to cure a default (Harrison & Seiler, 2015). In these states, if the borrower makes all missed payments within a designated period post-default, the lender must waive all penalties and stop the foreclosure (Rao & Walsh, 2005).…”

Do Liquidated Damages Clauses Affect Strategic Mortgage Default Morality? A Test of the Disjunctive Thesis

“…, Lee, Mayer and Tracy , Agarwal et al. ) or when the property is located in a judicial foreclosure state where the time to proceed through a foreclosure can be extremely lengthy (Ghent and Kudlyak , Harrison and Seiler )…”