Law Commons^™

Property And The True-Sale Doctrine, Heather Hughes

Articles in Law Reviews & Other Academic Journals

The true-sale doctrine governs financial transactions involving hundreds of billions of dollars each year. Yet this doctrine is confused, unsettled and subject to differing approaches from state to state: it lacks normative foundation and it lacks coherence. The true-sale doctrine determines the fate of investors asserting ownership of securitized assets at the expense of unsecured creditors, such as employees. It distinguishes assignments to secure loans (leaving assets potentially reachable by unsecured creditors), from outright sales (making assets the exclusive property of investors). A rich literature addresses the efficiency of securitization. But scholars and policy-makers have failed to sufficiently relate positions …

Property And The True-Sale Doctrine.Pdf, Heather Hughes

Heather Hughes

When Is A Dog’S Tail Not A Leg?: A Property-Based Methodology For Distinguishing Sales Of Receivables From Security Interests That Secure An Obligation, Steven L. Harris, Charles W. Mooney Jr.

All Faculty Scholarship

There are two principal ways in which a firm that is owed money payable in the future but needs the money now may use its rights to payment (“receivables”) to obtain the needed financing. It might sell its receivables, or it might borrow and use the receivables as collateral to secure the loan. Different legal consequences follow depending on whether the transaction is a true sale or is a security interest that secures an obligation (a “SISO”).

These legal consequences are particularly salient when the firm enters bankruptcy. If the transaction is a sale, then the buyer can collect the …

Goliath Versus Goliath In High-Stakes Mbs Litigation, David J. Reiss, Bradley T. Borden

David J Reiss

The loan-origination and mortgage-securitization practices between 2000 and 2007 created the housing and mortgage-backed securities bubble that precipitated the 2008 economic crisis and ensuing recession. The mess that the loan-origination and mortgage-securitization practices caused is now playing out in courts around the world. MBS investors are suing banks, MBS sponsors and underwriters for misrepresenting the quality of loans purportedly held in MBS pools and failing to properly transfer loan documents and mortgages to the pools, as required by the MBS pooling and servicing agreements. State and federal prosecutors have also filed claims against banks, underwriters and sponsors for the roles …

Dodd-Frank, Securitization, And The Subprime Mortgage Crisis, Stephen P. Hoffman

Stephen P. Hoffman

There are few things more constant in life than the rise and fall of financial markets. When markets crash, however, we are forced to restore them while learning from our mistakes. In the wake of the recent subprime mortgage crisis, Congress has drastically but deservedly overhauled the regulation of financial markets in order to not only prevent such disasters in the future, but to help restore financial stability more quickly if and when they do occur. In this Paper, I provide a background of the events leading up to the most devastating financial crisis since the Great Depression, focusing on …

The Uncertainty Of “True Sale” Analysis In Originator Bankruptcy, Stephen P. Hoffman

Stephen P. Hoffman

While much of law is complex or unclear, it is unusual for a judge to comment that a legal doctrine is so unsettled that courts “could flip a coin” to decide an issue. Unfortunately for practitioners, determining what constitutes a “true sale” for bankruptcy purposes is such an issue. Add to this the recent novel and innovative processes of structured finance and asset-backed securitization, and you have the stuff of law students’—and corporate counsels’—nightmares. As a result, courts and legislatures need to provide clarity in this area so that originators can safely structure investments and transactions, not only for the …

Credit Risk Transfer Governance: The Good, The Bad, And The Savvy, Houman B. Shadab

Articles & Chapters

Goldman Sachs and American International Group on the eve of the 2008 financial crisis were bound together through a web of credit risk transfer (CRT) contracts in the form of credit default swaps (CDSs) and synthetic collateralized debt obligations (CDOs). Synthetic CDOs enabled certain hedge funds to profit from the ultimate bursting of the housing bubble due to the funds’ savvy in understanding CRT better than their counterparties. This Article constructs a novel theory of CRT that extends the insights of creditor governance theory to CRT transactions. By doing so, this Article establishes a framework for good CRT governance. CRT …

Upper-Level Courses: Three Exemplars, Eric J. Gouvin, Mark Fagan, Tamar Frankel, Kathy Z. Heller

Faculty Scholarship

This Article presents three exemplars of upper-level law school classes, and is divided into three parts. Part I discusses "Securitization and Asset-Backed Securities"; Part II discusses "Using Transactions to Teach Secured Transactions"; and Part III discusses "Teaching Deals Through a Focus on the Entertainment Industry."

Paying For Suburban Sprawl: Relating Commercial Finance Law To Environmental Harm, Heather Hughes

Heather Hughes

This Article relates contemporary financing practices to land use results on the ground. Demonstrating a relationship between financing practices and environmental consequences requires excavation of core questions about the scope and structure of the private law rules that comprise commercial finance law. Private law mechanisms such as rules governing common forms of financial transactions can relieve the tension between financial incentives driving commercial actors, on the one hand, and the goals of environmental regulation, on the other. This Article explores the relationship between one, typical form of real estate development finance – the securitized mezzanine loan – and one, major …

Predatory Structured Finance, Christopher L. Peterson

ExpressO

Predatory lending is a real, pervasive, and destructive problem as demonstrated by record settlements, jury awards, media exposes, and a large body of empirical scholarship. Currently the national debate over predatory mortgage lending is shifting to the controversial question of who should bear liability for predatory lending practices. In today’s subprime mortgage market, originators and brokers quickly assign home loans through a complex and opaque series of transactions involving as many as a dozen different strategically organized companies. Loans are typically transferred into large pools, and then income from those loans is “structured” to appeal to different types of investors. …

What Makes Asset Securitization "Inefficient"?, Kenji Yamazaki

ExpressO

Despite the damage caused by the recent Enron scandal , the asset securitization market has been vibrant and has become a popular financing alternative . A number of academics emphasize its merits and suggest that it is a more favorable way of financing, and Congress’s proposal to make sales of asset in securitization immune from characterization as secured transactions under the Bankruptcy Reform Act of 2001 (the “Reform Act”) almost materialized when the Enron scandal hit the scene. Conversely, there have been accusations that securitization is not a legitimate way of financing because, for example, it fosters fraudulent transactions.

Why …

The End Of Notice: Secrets And Liens In Commercial Finance Law, Jonathan C. Lipson

ExpressO

This article explores important recent changes in the way that we treat personal property in commercial finance transactions. Among other things, these changes reduce or eliminate the obligation to give notice of interests in personal property when it is used in commercial finance transactions (as, e.g., collateral for a loan).

A principal purpose of notice-filing has been to deter the creation of secret liens, interests in property that are neither recorded nor otherwise readily observable. Secret liens are universally castigated as abhorrent.

Yet, two recent sets of legislative developments suggest that we may care much less about the problem of …

Secrets And Liens: Verification And Measurement In Commercial Finance Law, Jonathan C. Lipson

ExpressO

This article argues that commercial finance law increasingly uses contract rules to displace property rules, especially as these rules pertain to verifying and measuring property interests. In this context, verification simply means confirming the existence of a property interest, such as a lien or security interest. Measurement means determining the relationships of various property interests to one another (i.e., the priority of interests).

Historically, commercial finance law – in particular the Uniform Commercial Code, which governs loans secured by personal property – provided that something would be treated as “property” only if its property character was fairly easy to discover. …

Death And Resurrection Of Secured Credit, James J. White

Articles

The Bankruptcy Reform Act of 1978 (the Code) posed palpable threats to secured creditors. It was drafted by a commission that was at least as concerned with the rights of debtors as with the rights of creditors. It was modified and adopted by a Congress that might have been the most liberal since World War II and signed into law by President Carter at the apogee of the left's power, two years before the Reagan election that marked the rise of the right and the beginning of the left's decline. The power of the left was exerted most forcefully on …

Transition Losses In The Electric Power Market: A Challenge To The Premises Underlying The Arguments For Compensation, Lois R. Lupica

Faculty Publications

In this Article, Professor Lois R. Lupica examines whether the electric utility industry, currently j.n the midst of deregulation, ought to sustain the resulting transition losses. Due to the signifi· cant modification of legal rules affecting the electric power market and changes in regulatory policy, the utilities currently have expenditures and expectations that are unrecoverable in a competitive market. In recent years, momentum has moved in the direction of compensating the electric utilities and their investors for these losses. Professor Lupica challenges the arguments for transition loBS recovery and ultimately concludes that the doctrinal premises in support oftransition loss recovery …