Mark R. Lindblad and Sarah F. Riley

Center for Community Capital

 University of North Carolina-Chapel Hill

Abstract

While filing for personal bankruptcy halts home foreclosure proceedings through a legal process known as the automatic stay, little is known about whether and how personal bankruptcy decisions relate to the sales prices of homes sold through the foreclosure process.  Delaying foreclosure could reduce the likelihood of a “fire sale” of the property, thus raising the price of those homes that do undergo sale and potentially reducing financial losses when the home is eventually sold.  Alternatively, the provision in federal bankruptcy law to forestall home foreclosure may instead increase losses as foreclosed homes fall into disrepair and are eventually sold at greater loss.  We investigate these issues using the Community Advantage Panel Dataset.  We analyze a sample of lower income homeowners who became seriously delinquent on their 30-year fixed rate mortgages and whose lenders initiated foreclosure proceedings over the last decade.  We track sales prices relative to purchase prices, as well as house price estimates and broker price opinions within one year of foreclosure auction.  We link these sales price data to the personal bankruptcy decisions of foreclosed homeowners. Preliminary analyses show that sales prices were lower for the properties of those who filed for personal bankruptcy.  Future research should revisit these links among those debtors who filed personal bankruptcy for the purpose of delaying foreclosure of their home.