Property and the True-Sale Doctrine

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 on securitization's efficiency to normative positions on the true-sale doctrine. This article maps arguments about securitization's efficiency to formulations of the true-sale doctrine, to enable normative direction. It then relates true-sale rules to property-law concepts as strategy for coherence. The true-sale doctrine has not received scholarly attention in accord with its importance. This article, through mapping descriptions of securitization's efficiency to formulations of true-sale rules, demonstrates why the doctrine matters. 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. States' property laws should confer rights of exclusion in securitized assets in a way that is (i) justified, given potential effects of exclusion on creditors in weak bargaining positions, and (ii) clear, given the costs of uncertainty in the legal foundations of market-dominant transactions