Legal Definitions - BFP

BFP stands for Bona Fide Purchaser.

A Bona Fide Purchaser is someone who buys property (which can be real estate or personal items) for a significant price, acts honestly and in good faith, and has no knowledge or reason to know about any other person's prior claim or hidden defect in the seller's ownership. This legal status often provides the buyer with strong protection against unrecorded claims or hidden interests that might otherwise challenge their ownership.

To qualify as a Bona Fide Purchaser, three key conditions must generally be met:

• The buyer must have paid a substantial price for the property (known as "for value").
• The buyer must have acted honestly and genuinely believed the seller had the right to sell (known as "in good faith").
• The buyer must have had no actual, constructive (e.g., from public records), or inquiry notice (reason to investigate) of any competing claims or defects in the seller's title.

Here are some examples to illustrate this concept:

• Example 1: Real Estate Transaction

  Imagine Sarah buys a house from John. Before selling to Sarah, John had privately agreed to sell the house to Mark and signed a simple contract, but Mark never recorded this agreement in the public land records. Sarah conducts a thorough title search, which reveals no other claims on the property. She pays the full market value for the house and genuinely believes John is the sole owner. After the sale is complete and Sarah has moved in, Mark comes forward with his prior agreement.

  How it illustrates BFP: Sarah is a Bona Fide Purchaser. She paid significant value, acted in good faith by performing a title search, and had no notice (actual or constructive) of Mark's unrecorded claim. Because she is a BFP, Sarah's ownership of the house would likely be protected over Mark's unrecorded interest.

• Example 2: Business Asset Purchase

  A manufacturing company, "Global Industries," purchases a specialized piece of machinery from a smaller firm, "Precision Tools." Unbeknownst to Global Industries, Precision Tools had previously used the machinery as collateral for a loan, but the lender failed to properly file the necessary public financing statement (a UCC filing) to record their lien. Global Industries conducts its standard due diligence, finds no recorded liens against the machinery, pays a fair market price, and takes possession.

  How it illustrates BFP: Global Industries is a Bona Fide Purchaser. They paid value for the machinery, acted in good faith by checking public records, and had no notice of the lender's unrecorded lien. As a BFP, Global Industries would likely take ownership of the machinery free and clear of the lender's unrecorded claim.