How does statutory redemption affect a buyer's decision at the foreclosure sale?

- About one third of states in the U.S. offer the right of statutory redemption to a defaulting mortgagor.
- We derive a closed-form solution of a buyer's decision at the foreclosure sale.
- The buyer is less likely to purchase in states with statutory redemption than in states without it.
- The buyer is less likely to purchase if the redemption period lasts longer or housing price inflation fluctuates more severely.

About one third of states in the U.S. offer the right of statutory redemption to a defaulting mortgagor who can reclaim his/her foreclosed property within a certain period of time, usually lasting for one month to one year. We derive a closed-form solution of a buyer's decision at the foreclosure sale, which predicts that the buyer is less likely to purchase in states with statutory redemption than in states without it. In states with statutory redemption, a buyer is less likely to purchase if the redemption period lasts longer or housing price inflation fluctuates more severely because the buyer will then be hurt more by the mortgagor who owns more valuable repurchasing option.