BONA FIDE PURCHASER UNDER CALIFORNIA

Most California real estate transactions are memorialized by the parties involved through recordation of grant deeds, easements, and other interests in property.  However, where such recordation has not been made or is deficient in some manner, a title dispute can arise where a buyer, seller or other party (such as the holder of a deed of trust) can claim priority over earlier purchasers and liens, including judgments.  Such adverse interest negatively impacts the value of the property and can only be eliminated through the judicial process where the current title holder establishes that he or she is a bona fide purchaser.  “It is ‘black letter law’ that a bona fide purchaser for value who acquires his or her interest in real property without knowledge or notice of another’s prior rights or interests in the property takes the property free and clear of such unknown interests.  (In re: Marriage of Cloney (2001) 91 Cal.App.4th 429, 437.) A bona fide purchaser (also known as BFP, good-faith purchaser, innocent purchaser for value or purchaser in good faith) can seek a legal determination through a quiet title action that title is free and clear of any adverse interest in the property, thus eliminating any adverse impact on value.  (Reiner v. Danial (1989) 211 Cal.App.3d 682.)

To establish the elements of bona fide purchaser status, the buyer must have made a payment of value, in good faith, and without actual or constructive notice of another’s rights.  (Melendrez v. D&I Investment, Inc. (2005) 127 Cal.App.1238.)  “Actual notice is defined as ‘express information of a fact,’ while constructive notice is that ‘which is imputed by law.’ A person generally has ‘notice’ of a particular fact if that person has knowledge of circumstances which, upon reasonable inquiry would lead to that particular fact.”  (Marriage of Cloney, supra, at 436-437.)  An example of actual notice is where the buyer is personally told about a deed of trust that remains on title prior to his purchase.  Constructive notice is given by the recordation of documents relating to real property; this means that a buyer is expected to research title and recorded documents prior to purchase.  In addition, where the buyer becomes aware of circumstances which potentially may be adverse to his future interest, and he is obligated to conduct a reasonable inquiry into the facts prior to the purchase.  “If the purchaser neglects to prosecute such inquiry diligently he may not be awarded the standing of a bona fide purchaser.”  (Asisten v. Underwood (1960) 183 Cal.App.2d 304, 310.)  For this reason, prudent buyers will purchase a title insurance policy.  The title insurance company will complete the reasonable investigation required into the state of title to determine whether any adverse interests exist, and provide coverage should a dispute arise over title after the purchase.

Thus, whether or not a party qualifies as a bona fide purchaser (“BFP”) is, in most cases, not black and white. Therefore, complicated legal disputes often arise wherein the parties have a legitimate dispute as to whether the one party is a BFP. Determining your rights as a BFP is important to assess early on in any real property dispute. This blog article addresses only the basic concepts of the law regarding bona fide purchasers.  Please contact us to discuss your rights and options should you need legal advice.

Bona Fide Purchaser status is a complex and detailed statutory structure. The information above is by no means exhaustive, and does not, and is not intended to, constitute legal advice. All information, content, and materials are for general informational purposes only and do not create an attorney-client relationship. The experienced and knowledgeable attorneys at Blake Law Firm are available to help you navigate bona fide purchaser status, foreclosures, and other real property concerns.

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