The Effect of Foreclosures on Homeowners, Tenants, and Landlords

Sep 16, 2026

How costly is foreclosure? Estimates of the social cost of foreclosure typically emphasize financial costs. Using random judge assignment instrumental variable (IV) and propensity score matching (PSM) methods with data from Cook County, Illinois, the study finds substantial non-pecuniary costs, especially for foreclosed-upon homeowners. Across approaches, foreclosure increases housing instability, reduces homeownership, and drives financial distress. For marginal homeowners, foreclosure also worsens neighborhood outcomes and is associated with elevated divorce, with differences explained by treatment effect heterogeneity.

LanguageEnglish

CategoryPresentations

FormatPDF

Pages84

Reading Time29 min

AccessFree to download

Abstract

Research question and policy relevance

Data and identification strategy

Main findings by homeowner, renter, and landlord status

Interpretation of cost channels

NBER WORKING PAPER SERIES THE EFFECT OF FORECLOSURES ON HOMEOWNERS, TENANTS, AND LANDLORDS Rebecca Diamond Adam Guren Rose Tan Working Paper 27358 [http://www.nber.org/papers/w27358](http://www.nber.org/papers/w27358) NATIONAL BUREAU OF ECONOMIC RESEARCH 1050 Massachusetts Avenue Cambridge, MA 02138 June 2020, Revised November 2025 Zheyu Ni, Shizhe Zhong, Abhisit Jiranaphawiboon, and Sara Johns in particular provided outstanding research assistance. Stijn Van Nieuwerburgh, Raven Molloy, Matt Notowidigdo, and seminar participants at NYU, BU, Opportunity Insights, the UEA meetings, the ASSA meetings, and the NBER Summer Institute CF and UE programs provided useful comments and discussion. Diamond acknowledges support from the Stanford Graduate School of Business, the National Science Foundation (CAREER Grant \#1848036), and the Sloan Foundation. Guren acknowledges support from the National Science Foundation (Grant \#1623801) . Tan acknowledges support from the National Science Foundation Graduate Research Fellowship (Grant \#1656518) . Any opinion, findings, and conclusions or recommendations expressed in this material are those of the authors and do not necessarily reflect the views of the National Science Foundation. The authors have obtained IRB approval from Stanford University to conduct this research. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research. At least one co-author has disclosed additional relationships of potential relevance for this research. Further information is available online at [http://www.nber.org/papers/w27358](http://www.nber.org/papers/w27358) NBER working papers are circulated for discussion and comment purposes. They have not been peer-reviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications. © 2020 by Rebecca Diamond, Adam Guren, and Rose Tan. All rights reserved. Short sections of text, not to exceed two paragraphs, may be quoted without explicit permission provided that full credit, including © notice, is given to the source. The Effect of Foreclosures on Homeowners, Tenants, and Landlords Rebecca Diamond, Adam Guren, and Rose Tan NBER Working Paper No. 27358 June 2020, Revised November 2025 JEL No. R21, R51 ABSTRACT How costly is foreclosure? Estimates of the social cost of foreclosure typically focus on financial costs. Using random judge assignment instrumental variable (IV) and propensity score matching (PSM) approaches in Cook County, Illinois, we find evidence of significant non-pecuniary costs of foreclosure, particularly for foreclosed-upon homeowners. For all homeowners (IV and PSM), foreclosure causes housing instability, reduced homeownership, and financial distress. For marginal homeowners (IV) but not average homeowners (PSM), foreclosure also causes moves to worse neighborhoods and elevated divorce. We show that the difference between IV and PSM is due to treatment effect heterogeneity: marginal homeowners have more to lose than average homeowners. We find similar financial costs for landlords, although the non-financial effects we find for owners are absent. We find few negative effects for renters whose landlord forecloses. The contrast between our results for owners, renters, and landlords implies that the financial costs come from the financial loss while the non-financial costs for owners are due to a combination of eviction and financial loss rather than either individually. Our estimates imply that foreclosure is far more costly than current estimates imply, particularly for marginal cases that are most responsive to foreclosure mitigation policies, and that the costs are disproportionately borne by owners who lose their home. Rebecca Diamond Harvard University Department of Economics and NBER[rdiamond@fas.harvard.edu](rdiamond@fas.harvard.edu) Adam Guren Boston University Department of Econo

FAQs

How does the paper estimate the impact of foreclosure?

It uses random judge assignment instrumental variable (IV) and propensity score matching (PSM) approaches with foreclosure filings in Cook County, Illinois, to estimate causal effects while mitigating selection bias.

What non-financial effects does foreclosure have on homeowners?

For homeowners, foreclosure causes housing instability, reduced homeownership, and financial distress. For marginal homeowners (in the IV analysis), it also leads to moves to worse neighborhoods and higher divorce rates.

Do renters and landlords experience the same effects as owners?

The study finds few negative effects for renters when their landlord is foreclosed. For landlords, financial costs are similar to owners, but the non-financial effects observed for owners are absent.

Sep 16, 2026

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