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Bankruptcy, Backwards

posted by Adam Levitin

Credit Slips Own Anna Gelpern has a great new article in the Yale Law Journal that very much deserves a plug. It's called "Bankruptcy, Backwards:  The Problem of Quasi-Sovereign Debt." The article deals with the problems of financial distress for quasi-sovereigns, like US states or even to some degree EU member states. As Anna points out, bankruptcy seems to mean all things to all people, and as a result framing discussions of how to deal with quasi-sovereign debt---where there is no bankruptcy regime of any sort--quickly devolves into debates about existing bankruptcy systems, like US Chapter 9, rather than starting from the unique problems of quasi-sovereign debtors and then figuring out what sort of financial restructuring system might make sense.

I highly recommend the article, particularly for those of us who don't regularly deal with sovereign debt issues. There's a strange divide in practice and scholarship between domestic bankruptcy and sovereign debt restructuring. A few people (David Skeel, Steven Schwarcz, Bob Rasmussen, e.g.) have written in both areas, but they remain pretty separate fields. Anna's insights from the sovereign debt field are very useful for domestic bankruptcy scholars, as they help us step back and see the larger picture of what is going on.  


On a somewhat unrelated note I heard that MA SJC is reopening the Eaton vs Fannie Mae as to whether the should rule retrospectively or prospectively. One person somewhat more familiar with the case than myself was wondering whether they were not signalling to the executive branch that they could meltdown the entire mortgage securitization complex and the feds need to start foaming the runway. I am not really a lawyer just someone following the whole foreclosure mess.

I heartily second Adam's recommendation to read Anna's paper. It is a very useful contribution!

Prof. Levitin,
As a follow up to Tim above, will you be filing a supplemental brief in Eaton v FNMA?

Off topic, but here's something I haven't seen addressed yet. I'd love feedback from you, Adam. When a big bank like, say, B of A, forecloses on a property, they can easily skim off the mineral rights when that property eventually sells. Hmmmm..... nice little perk for the banksters, right?

Reading newly issued title policies very, very carefully raised some questions for me:

1) Who owns the title company which is insuring title to the property(too ofit is the seller/ban­k)
2) What are buyers options before OR after closing if they discover the title is, um, fatally clouded? (no options = buy property or foreit earnest $)
3) Who does the title policy protect, buyer or the bank/selle­r? (if the bank owns the company that wrote the title policy, what do you think?)
3) Will the mineral rights convey to the buyer with the property?

I'd love to hear from some people with real experience in this area. I'm just a homeowner fighting for my life out here, and I'm trying to figure out the bank's end game in all of this. Following the money led me down this dark little side street....­....

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