Liu, PengQuan, Daniel2020-09-122020-09-122011-11-1410500988https://hdl.handle.net/1813/72443The decision to foreclose on a CMBS mortgage is made by the special servicer. A mortgage loan is in special servicing when it is either delinquent or in a state of imminent default. A special servicer should represent the interests of the underlying CMBS bondholders by returning the highest possible value to the investors. In this paper, we show that a special servicer's compensation structure results in an incentive for her to extend a loan beyond the time desired by its bondholders. We develop a model and demonstrate how compensation incentives interact and influence a special servicer's foreclosure decisions. Our model takes into consideration the dynamic nature of such a decision by viewing is as a dynamic programming problem whereby foreclosure represents a discrete terminal state of an optimal stopping problem. This model thus captures the trade-off between continuation of a loan and termination and we use this model to determine how the stopping rule changes under various compensation structures.en-USRequired Publisher Statement: © Springer. Final version published as: Liu, P., & Quan, D. (2013). Foreclosure of securitized commercial mortgages - a model of the special servicer. Journal of Real Estate Finance and Economics, 46(2), 321–338. Reprinted with permission. All rights reserved.CMBSspecial servicerforeclosureoptimal contract designfirst-loss bondarticle