The first step should be to determine the fair market value of the transferred accounts. If a court determines that legally distinct and separate entities exchanged market value consideration it should characterize the account transfer as a true sale. Unfortunately, the bankruptcy courts have struggled in applying these seemingly straightforward concepts. They have not articulated consistent rules with respect to the fundamental issues of true sale. The lack of a uniform standard has resulted in conflicts among the federal circuit courts with respect to the proper treatment of structured financing transactions in bankruptcy.
Most cases begin by looking at the nature of the transfer.
It is often described as a transaction that legally and equitably removes the assets and any interest in the assets from the estate of the transferor. The typical securitization transaction starts with a contract memorializing the purchase and sale of income-producing assets. Alone this is insufficient to ensure that a court will characterize the transaction as a sale. Courts continue to disagree about the significance to be attributed to a document that purports to structure an absolute assignment. The separateness of the transacting entities is essential to guarding against potential fraud.