Washington Law Review
Avoidability of Foreclosure Sales under Section 548(a)(2) of the Bankruptcy Code: Revisiting the Transfer Issue and Standardizing Reasonable Equivalency
Federal courts consider the 1984 amendments to the Bankruptcy Code to have conclusively defined "transfer" to include foreclosure sales under section 548(a)(2). This Comment questions this widely accepted interpretation. Moreover, federal courts have strongly disagreed on the meaning of "reasonably equivalent value" under section 548(a)(2) of the Bankruptcy Code for the purpose of avoiding a foreclosure sale as a constructive fraudulent transfer. This Comment examines the three dominant but divergent approaches to determining reasonable equivalency. It concludes that both the Durrett 70-percent rule and the Madrid state-procedural approach are inappropriate standards because they fail to comport with the statutory language and purpose of section 548(a)(2). This Comment also asserts that a multi-factor analysis analogous to the UCC commercial reasonableness standard can best achieve the purpose of section 548(a)(2) and balance the comity concerns between federal and state laws. Finally, it suggests that courts engaging in such an analysis should not focus exclusively on public sales, but should also inquire into pre-foreclosure sales efforts commonly accepted as an integral part of a commercially reasonable disposition.
Vic S. Lam,
Avoidability of Foreclosure Sales under Section 548(a)(2) of the Bankruptcy Code: Revisiting the Transfer Issue and Standardizing Reasonable Equivalency,
68 Wash. L. Rev.
Available at: https://digitalcommons.law.uw.edu/wlr/vol68/iss3/5