Article by Lawrence Ponoroff
In spite of the supremacy of federal law, bankruptcy law cannot survive without reference to and incorporation of state law. Therefore, the division of authority between state and federal law in the bankruptcy arena creates an ongoing tension that oscillates along the normative spectrum without ever locating a point of perfect equipoise. One area where this tension has historically played out, and continues to do so, is in connection with non-collusive, regularly conducted foreclosure sales. The United States Supreme Court attempted to, and to an extent did, provide a measure of certainty with its 1994 decision in BFP v. Resolution Trust Corp, imposing a conclusive presumption that the proceeds received in a mortgage foreclosure conducted in accordance with state law would be deemed reasonably equivalent return value, thus insulating the transaction from fraudulent transfer challenges. However, BFP was decided on narrow grounds and the issue continues to divide the courts of appeals in connection with other kinds of forced sales, most notably including tax lien foreclosures. Adding to the cacophony of confusion, one circuit court has now recognized that a non-collusive tax sale may be set aside as a preference. This Article examines all of these developments and attempts to impose an analytic framework for reconciling the existing case law and dealing with cases yet to arise. It calls for preference doctrine to be excised from the undertaking with a view toward preserving the integrity of the holding in BFP but confining its inquiry in connection with involuntary dispositions of property to a narrow category of cases in order not to interfere unduly with the core bankruptcy objectives of value maximization, equality of creditors, and fresh start.
About the Author
Lawrence Ponoroff, Professor Emeritus and Dean Emeritus, Tulane University Law School.
Citation
97 Tul. L. Rev. 519