Protecting a Bona Fide Purchaser of Florida Residential Real Estate

Posted By on July 19, 2016

Under Florida law, a “bona fide purchaser” of real estate is afforded certain protections including ownership and title. The rule essentially provides a buyer with superior rights to property over those who may have valid interests in the property, albeit unrecorded ones.

The recording of documents in the public records are done so for important reasons. As discussed in our prior post, it is critical to have any interest (ownership, lien, creditor interest, inheritance right, etc.) documented and recorded in the Florida public records of the county where the property is located. As a general rule, legal notice which is timely recorded in the proper county clerk’s office is what gives anyone with an interest in Florida real estate the ability to claim a superior interest in property against those who subsequently claim an interest in the same real estate.

 

South Palm Beach condominium lakeside

South Palm Beach Condominiums – Lakeside View


 

Who is a Bona Fide Purchaser?

Under Florida law, a “bona fide purchaser” is a buyer of Florida real estate that can show:

  1. He acquired the legal title to the property in question;
  2. He paid for this property with something of value; and
  3. He had no knowledge of the interest against this property at the time when he paid for it and acquired title to it.

See, DGG Development Corp. v. Estate of Capponi, 983 So. 2d 1232 (Fla. Dist. Ct. App. 2008).

It sounds easy enough, but sometimes it’s not that easy to prove that you are, indeed, a bona fide purchaser of real estate here in Florida. You cannot be considered a “bona fide purchaser” for instance if you take possession, ownership, and control of the property with notice of someone else claiming to have an outstanding interest in it. It does not matter whether or not you think their claim is valid or above-board. The fact that you buy a piece of property with an awareness that someone is asserting a claim against that land is enough to disqualify you from “bona fide purchaser” status. . Kroitzsch v. Steele, 768 So.2d 514, 517 (Fla. 2d DCA 2000).

Why have this rule?

To protect those who are bona fide purchasers. The rule works to protect buyers of residential real estate who pay their money and take title without knowing that someone (or something, like a company or an estate) has a legal claim to assert against that property. It’s a legal construct that has worked to protect innocent, good faith purchasers of real estate in Florida for almost 100 years. See, Myers v. Van Buskirk, 96 Fla. 704, 119 So. 123 (1928).

What Is Adequate Notice to a Buyer?

Buyers may be considered to know about adverse interests and claims against the real estate they are buying in a variety of ways. It can get tricky for the purchasers.

One of the most obvious is possession of the real estate. If a buyer is contracting to buy a home in South Florida, for instance, he will be considered to have notice of anyone living in the home or condo and in possession of it at the time that the sales agreement is signed.

Another form of notice to the purchaser is actual or constructive notice, where a document has been filed in the real estate property records for the county in which the land is located. Here, a title search should reveal to the buyer that there is a lien on the property for an unpaid contractor’s invoice, or perhaps a property tax lien.

What About An Unrecorded Deed?

Under Florida law, an unrecorded deed is void insofar as creditors or purchasers who have no notice of the transaction recorded in that deed. However, the deed will be valid as between the parties (the grantor and grantee) in that unrecorded document. See, Townsend v. Morton, 36 So. 3d 865 (Fla. 5th DCA 2010).

What About Successors in Interest to the Buyer That Don’t Know About Any Adverse Claims?

Someone who buys a piece of real estate from the buyer is called a “successor in title.” Consider someone who buys a condo, fixes it up and then flips it. That new buyer is considered the flipper’s “successor in title.” These new buyers will take title to that condo subject to any interests in that property for which they have notice. If they have no notice, then they are considered a bona fide purchaser for value.

However, these buyers need to be careful. If their seller (the first buyer, the flipper in our scenario) had no legal title, then he had nothing to transfer to them legally. These new buyers legally buy NOTHING. The “bona fide purchaser” rule only applies to those buyers that do buy and hold some kind of legal title — one that has other interests or claims being asserted against it.

If the buyer has no legal title or legal ownership, then the “bona fide purchaser” rule will not apply to the successor in interest. You have to have a title interest to be protected by the bona fide purchaser rule. See, Am. Jur. 2d, Vendor and Purchaser § 370.

Who Has the Duty to Prove Application of the Bona Fide Purchaser Rule?

In Florida, it’s assumed that all real estate transactions are bona fide with the buyer being protected by the bona fide purchaser rule. However, if a challenge or claim is made, then the party that seeks the legal protection of that “bona fide purchaser” shield has the legal duty to find evidence to prove that he or she meets the definition and qualifications for its application.

After that, the party that is challenging the title or asserting the claim or interest has the responsibility of providing evidence that the buyer is still not protected because of things like (1) notice did exist for the buyer; (2) the purchaser is acting in bad faith; etc. See, Feinberg v. Stearns, 56 Fla. 279, 47 So. 797 (1908).

What About a Quitclaim Deed?

Quitclaim deeds in Florida allow someone to transfer to another only as much interest in the real estate as they may have. Under Florida Statute 695.01(2), a purchaser of real estate in Florida that holds a quitclaim deed can be considered a bona fide purchaser as long as they have had no notice of an adverse interest as that is defined in the Florida recording laws.

Specifically, the law states:

Grantees by quitclaim, heretofore or hereafter made, shall be deemed and held to be bona fide purchasers without notice within the meaning of the recording acts.

What If The Buyer Committed Fraud?

Sadly, there are times when Florida real estate transactions involve bad people doing bad things. There can be times when a buyer will buy Florida real estate under fraudulent circumstances. If a deed is obtained by fraud, then there’s often a successor in interest involved because the wrongdoer will be interested in moving that fraudulent holding fast.

Here, that successor in interest may well have paid good money and have had no idea that his seller — the initial buyer — was a bad actor. Under Florida law, even if this person was without any notice of any fraud and spent good money to buy the real estate, the bona fide purchaser rule will not protect him from the interests asserted by the initial seller who was defrauded. This is true even if his deed is recorded and the seller has legal notice of it. See, Houston v. Forman, 92 Fla. 1, 109 So. 297 (1926).

That successor in interest may hold only an equitable interest against the land for the monies he has spent.

For instance, in the case of Houston v. Mentelos, 318 So.2d 427 (Fla.3d DCA 1975), Henry Gordon was held to have an equitable interest in the Florida real estate he thought he had bought, but not legal title. This money was the sum total of what Mr. Gordon had paid to clear liens and encumbrances on the real estate. Mr. Gordon had an interest against the land to assert, but he would not be protected by the bona fide purchaser rule.

Why? Mr. Gordon, as successor in interest, did not hold legal title to the land. This was because a man named Thomas Mentelos had obtained the seller’s signature on a Warranty Deed through fraud. Mr. Mentelos had told the seller that the document he was signing was to get an existing oral lease agreement down on paper. However, the document wasn’t a lease; it was a deed transferring title.

The seller proved he had not committed negligence in signing the paperwork, and the court held the deed to be void because it had been obtained by fraud. When Mentelos conveyed the tract to Mr. Gordon, he could not pass legal title to him because he had no valid title to convey.

The Power of the Bona Fide Purchaser Rule

In Florida, buyers of real estate are presumed to be “bona fide purchasers” with all the legal protections that provides. Any buyer that holds legal title to the property or is entitled to call for legal title to the real estate is covered by the Florida “bona fide purchaser rule.”

However, buyers need to be careful in their real estate transactions here in Florida. If they are victims of fraud, then they may not be buying the property at all (like Mr. Gordon in the above case discovered). Also, if the deal has not been finalized, then the buyer holds only an executory contract for the purchase of land — and cannot be considered a “bona fide purchaser” if the deal goes sour.

Florida Real Estate Lawyer Can Help Buyers Make Sure They Are Protected as Bona Fide Purchasers

Having an experienced Florida residential real estate lawyer overseeing a real estate transaction from the initial agreement to purchase through closing can be invaluable to a buyer (as well as a seller). Red flags that may not be apparent to the parties, or their real estate agents, may be obvious to someone who has been dealing with residential real estate crisis and conflicts for years.

A good piece of advice if you are involved in an issue related to the bona fide purchaser rule, is to at least speak with an experienced Florida real estate lawyer to learn about your rights. Most real estate lawyers, like Larry Tolchinsky, offer a free initial consultation (over the phone or in person, whichever you prefer) to answer your questions.

_______________

Picture of Larry Tolchinsky

Do you have questions or comments? Then please feel free to send Larry an email or call him now at (954) 458-8655.

 
 
 
 
 
If you found this information helpful, please share this article and bookmark it for your future reference.

Comments

Leave a Reply

Please note: Comment moderation is currently enabled so there will be a delay between when you post your comment and when it shows up. Patience is a virtue; there is no need to re-submit your comment.

css.php