Establishing Bona Fide Purchaser Status Under California’s Notice Rules
Many conflicts arise from real property purchase disputes where a buyer, seller or other party claims priority over earlier purchasers and liens (encumbrances), including judgments. The conflicted rules applied in these quiet title actions underlie the importance of hiring a qualified real estate litigator in California.
Status as Bona Fide Purchaser or Encumbrancer for Value
“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 interest in the property takes the property free of such unknown interests.” In re Marriage of Cloney (2001) 91 Cal.App.4th 429, 437. Accordingly, a bona fide purchaser without notice may seek a legal determination through a quiet title action that the title it obtained remains free and clear of any adverse interest in the property. Reiner v. Danial (1989) 211 Cal.App.3d 682.
What is a Bona Fide Purchaser (BFP)?
“The elements of bona fide purchase are 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.4th 1238, 1251. Conversely, “it is an equally well-established principle of law that any purchaser of real property acquires the property subject to prior interests of which he or she has actual or constructive notice.” In re Marriage of Cloney (2001) 91 Cal.App.4th 429, 437. Exactly what constitutes actual or constructive notice requires a careful analysis of the law in California.
Actual Notice of a Fact
“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.” In re Marriage of Cloney (2001) 91 Cal.App.4th 429, 436–437.
Constructive Notice from Properly Recorded Documents
In 2020, the Court of Appeal explained that: “Constructive notice of a lien or other interest in property arises from the proper recording of that interest.” Vasquez v. LBS Financial Credit Union (2020) 52 Cal.App.5th 97, 107–108. This means that the law implies that every buyer has read every properly recorded instrument in the county recorder. Indeed,: “The effect of a lis pendens is to give constructive notice of all facts apparent on the face of the proceedings, and of those facts of which the facts so stated necessarily put a purchaser on inquiry; and a subsequent purchaser from a party takes subject to any judgment that may be rendered in the action of the pendency of which notice is given.” Olson v. Cornwell (1933) 134 Cal.App. 419, 426.
Inquiry Notice from Knowledge of Circumstances that, Upon Reasonable Inquiry, Would Lead to that Particular Fact
Many conflicts can arise from the proposition that “[a] purchaser may also have constructive notice of a fact affecting his or her property rights where the purchaser has knowledge of circumstances which, upon reasonable inquiry, would lead to that particular fact.” Vasquez v. LBS Financial Credit Union (2020) 52 Cal.App.5th 97, 108. “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. “This type of constructive notice is often described as inquiry notice.” Vasquez v. LBS Financial Credit Union (2020) 52 Cal.App.5th 97, 108.
Imputed Notice from Agents in the Course and Scope of Their Duties
“In addition, notice of an adverse interest may be imputed to a purchaser from knowledge acquired by her or his agent acting within the course and scope of the agent’s authority.” Vasquez v. LBS Financial Credit Union (2020) 52 Cal.App.5th 97, 108. “The basis for imputing knowledge to the principal is that the agent has a legal duty to disclose information obtained in the course of the agency and material to the subject matter of the agency, and the agent will be presumed to have fulfilled this duty. The scope of the imputation of knowledge is directly related to the scope of the duty arising from the agency agreement; it has nothing to do with whether the agent actually has the information in question or has it only constructively, or whether it is practical to expect the agent to remember something that happened months ago.” Triple A Management Co., Inc. v. Frisone (1999) 69 Cal.App.4th 520, 534–535.
Notice Implied from Possession or Use
A rare form of notice is implied by law when apparent possession is inconsistent with title appearing of record. Otherwise, an encumbrancer may have a duty to inquire as to unrecorded agreements between joint owners or those in possession. Caito v. United California Bank (1978) 20 Cal.3d 694.
Contact an Experienced Quiet Title Dispute Lawyer in California
This article addressed only the very basic concepts of notice used to defeat or establish the status of a bona fide purchaser or encumbrancer. It is important to contact a skilled real estate litigator in California to consider your rights.