Ever since the securitization market began its exponential growth three decades ago, scholars and lawyers involved in structured finance have searched for a secular “holy grail”—a clear legal definition of a true-sale. The quest is an important one. Despite its implosion in the aftermath of the financial crisis a decade ago, the securitization market in the U.S. remains massive and is now roaring back to growth. Standard & Poor’s recently estimated that new private securitization issuances in the U.S. alone may reach $565 billion in 2018, a figure which represents an increase of more than 50 percent from just two years ago, and new private securitizations worldwide this year are expected to top $1 trillion. Scholars and securitization participants have proposed a variety of analytical approaches to create a comprehensive true-sale doctrine. However, courts continue to rely on a nonexclusive set of factors governed mostly by state law in making their true-sale decisions.
In this article, RK&O partner Christopher Andrew Jarvinen explores the continued vitality of the factors’ approach in determining whether a transaction represents a true-sale or a loan, and highlights some of the true-sale frameworks suggested by commentators.