Panel Paper: Structure Type and Foreclosure Externalities

Thursday, November 8, 2012 : 11:15 AM
Salon B (Radisson Plaza Lord Baltimore Hotel)

*Names in bold indicate Presenter

Lynn Fisher1, Lauren Lambie-Hanson2 and Paul Willen2, (1)University of North Carolina at Chapel Hill, (2)Federal Reserve Bank of Boston

Properties that sell near foreclosed condominiums sell at a much deeper discount than properties located near foreclosed single family homes. In this paper, we document this fact and evaluate possible explanations. In particular, we focus on the effect of condo associations. One hypothesis is that distressed borrowers fail to pay condo association fees, which leads to deterioration of common property. In addition, FHA, Fannie Mae, and Freddie Mac restrict credit for condos in associations with substantial unpaid fees or a high fraction of non-occupant owners. We use a Massachusetts dataset which consists of a matched sample of property records, loan records, and listings data from the MLS. Our data allow us to identify condominiums that are in the same association and condominiums that are nearby but in different associations.