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

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  • Michael J. Seiler

Abstract

We test the disjunctive thesis as it relates to mortgage contracts and find that a liquidated damages clause shifts ones view of a mortgage from a promise to perform to either a promise to perform or pay compensatory damages. However, when a strategic mortgage default is responsible for the breach, the perceived immorality of this action overwhelms the liquidated damages clause effect in support of the disjunctive thesis. We also find that people's conscious “experimentally stated preference†moral stance on installment loan (mortgages, auto loans, credit card debt and even cell phone contracts) default significantly differs from their subconscious “experimentally revealed preference†moral stance indicating a difference between what people say they believe and what they actually believe.

Suggested Citation

  • Michael J. Seiler, 2017. "Do Liquidated Damages Clauses Affect Strategic Mortgage Default Morality? A Test of the Disjunctive Thesis," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 45(1), pages 204-230, February.
    • Handle: RePEc:bla:reesec:v:45:y:2017:i:1:p:204-230
    DOI: 10.1111/1540-6229.12142
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    Cited by:

    1. David M. Harrison & Kimberly F. Luchtenberg & Michael J. Seiler, 2023. "Improving Mortgage Default Collection Efforts by Employing the Decoy Effect," The Journal of Real Estate Finance and Economics, Springer, vol. 66(4), pages 840-860, May.
    2. Jackson T. Anderson & David M. Harrison & Michael J. Seiler, 2022. "Reducing Strategic Forbearance under the CARES Act: an Experimental Approach Utilizing Recourse Attestation," The Journal of Real Estate Finance and Economics, Springer, vol. 65(2), pages 230-260, August.
    3. Jackson T. Anderson & David M. Harrison & Kimberly F. Luchtenberg & Michael J. Seiler, 2023. "Legal Versus Psychological Contracts: When Does a Mortgage Default Settlement Contract Become a Contract?," The Journal of Real Estate Finance and Economics, Springer, vol. 67(2), pages 191-217, August.
    4. Kimberly F. Luchtenberg & Michael J. Seiler & Hua Sun, 2019. "Listing Agent Signals: Does a Picture Paint a Thousand Words?," The Journal of Real Estate Finance and Economics, Springer, vol. 59(4), pages 617-648, November.
    5. Hirota, Shinichi & Suzuki-Löffelholz, Kumi & Udagawa, Daisuke, 2020. "Does owners’ purchase price affect rent offered? Experimental evidence," Journal of Behavioral and Experimental Finance, Elsevier, vol. 25(C).
    6. Odey Alshboul & Mohammad A. Alzubaidi & Rabia Emhamed Al Mamlook & Ghassan Almasabha & Ali Saeed Almuflih & Ali Shehadeh, 2022. "Forecasting Liquidated Damages via Machine Learning-Based Modified Regression Models for Highway Construction Projects," Sustainability, MDPI, vol. 14(10), pages 1-25, May.
    7. Odey Alshboul & Ali Shehadeh & Rabia Emhamed Al Mamlook & Ghassan Almasabha & Ali Saeed Almuflih & Saleh Y. Alghamdi, 2022. "Prediction Liquidated Damages via Ensemble Machine Learning Model: Towards Sustainable Highway Construction Projects," Sustainability, MDPI, vol. 14(15), pages 1-23, July.

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