What Is A BFP And Why Should You Care?

I’ve had many clients who buy at foreclosure, drawn to the rock bottom prices and willing to take the risk of purchasing sight-unseen.  Buying real estate at foreclosure since the 2008 financial crisis can be like taking a long walk in the dark, a walk made even longer and uncertain by all of the legal “reforms” that have granted new rights to tenants and defaulting borrowers at the expense of the real estate investor. 

These politically-motivated “reforms” have, in essence, given the defaulting (and foreclosed out) borrower new potential legal grounds for setting aside the foreclosure sale and given tenants new grounds for staying even longer in your property post-foreclosure.  The real result of the politicians’ misguided efforts to appear compassionate toward those who borrowed money and then didn’t pay it back is, not surprisingly, money.  The prior owners and tenants use the legal “reforms” to jack up the price of cash-for-keys deals for the new property owner.   

An ancillary negative effect of all the “foreclosure reforms” is that it has (not surprisingly) lead to an explosion in foreclosure litigation.  As a result, the courts have had to get into the act interpreting these statutes thereby creating expanded grounds for tenants and defaulting homeowners to kick up more sand post-foreclosure.  Needless to say, the law of foreclosure has become extremely complicated. 

Investors can take some relief in the fact that the courts, with a couple of exceptions, have towed the line on BFP status.  Specifically, the courts have largely protected the BFP’s exalted status in the law despite the best efforts of defaulting borrowers to dilute, and carve out exceptions to, BFP status.   

So, what is a BFP?  BFP is an acronym for bona fide purchaser.  A bona fide purchaser of real estate is one who buys property without knowledge of any adverse claims against it and gives value for the property.  In short, a BFP is an innocent, after-the-fact buyer who doesn’t know of any disputes relating to, or claims against, the property he’s buying.  The law protects a BFP by allowing him to acquire the property free and clear of all adverse claims that he didn’t know about when he bought.

In the foreclosure context, the third party buyer at foreclosure is almost always a BFP.  (If the foreclosing bank, by contrast, winds up taking the property back at foreclosure, BFP status is not as obvious).  Once a foreclosed piece of property is transferred by the trustee to a BFP, it is much harder for the foreclosed out prior owner to get a court to later set aside the foreclosure sale. 

Indeed, the only genuine claim by the defaulting borrower that he could raise against a BFP is that the foreclosure was “void”.  However, the courts have narrowly defined what constitutes a “void” foreclosure sale and “void” sales are not very common.  These days, by the time that the property is sold at foreclosure, there have probably been long running battles between the defaulting borrower and the bank.  One benefit of BFP status is that, in most circumstances, you can acquire the property free and clear of whatever disputes between the bank and borrower preceded the foreclosure. 

If you do get sued by a foreclosed homeowner, you should have a lawyer who specializes in this area look at your case right away.  If he determines that you qualify as a BFP, he’ll probably be able to get a good result for you and get the court to throw out prior to trial the defaulting borrower’s case against you.  But you’ll need the all-important determination of BFP status and then the attorney can guide your defense from there.      


About howardfburns
I am a foreclosure litigation and landlord/tenant attorney in San Diego, California. I have been an attorney in San Diego, California for 29 years during which time I have represented landlords, property management companies, real estate investors, and secured creditors in hundreds of litigated cases. Howard F. Burns, Esq. Law Office of Howard F. Burns 8880 Rio San Diego Drive, Ste. 800 San Diego, CA 92108 (619) 243-1757 (Telephone) (619) 297-1497 (Facsimile) howardfburns@gmail.com (Email) www.lawofficeofhowardfburns (Website)

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