Property and The True-Sale Doctrine

Posted: 11 Jul 2016  

Heather Hughes

American University - Washington College of Law

Date Written: July 10, 2016


The true-sale doctrine determines whether securitized assets constitute part of a company’s bankruptcy estate. It distinguishes assignments to secure loans from true sales, after which assets are property of a special-purpose entity and belong exclusively to investors. The true-sale doctrine is at the heart of receivables securitizations, involving hundreds of billions of dollars each year: bankruptcy and accounting outcomes hinge on its correct administration. Yet this doctrine is confused, unsettled and subject to differing approaches from state to state. Recently, commentators have argued that states should adopt a standard for identifying true sales of securitized receivables that is firmly grounded in property law. Rather than consider factors such as recourse or price to classify a receivables conveyance, these scholars argue, we should ask only whether or not the originator retains an interest in the receivables. This Article intervenes in this discussion. A true-sale doctrine explicitly rooted in property law would be better than current formulations. But successful true-sale rules must be grounded in a conception of property that can explain and justify investors’ rights of exclusion against a company’s unsecured creditors. A rich literature addresses the efficiency and desirability of securitization, taking on the question of whether and when securitized assets should (or should not be) bankruptcy-remote. Yet this literature fails to relate positions on securitization’s efficiency to normative positions on the true-sale doctrine. This Article fills this gap. It synthesizes literature surrounding securitization, bankruptcy remoteness, true-sales, property, and current Statements of Financial Accounting Standards, in order to argue for true-sale rules that appropriately align property interests and risk in the receivables securitization context.

Keywords: securitzation, true-sale doctrine, commercial law, property, accounting standards

Suggested Citation

Hughes, Heather, Property and The True-Sale Doctrine (July 10, 2016). Available at SSRN:

Heather Hughes (Contact Author)

American University - Washington College of Law ( email )

4300 Nebraska Avenue, NW
Washington, DC 20016
United States

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