While purchasing property, every buyer puts their best effort to find out if a third party has any claim on the property. Since investing in a property requires a huge financial commitment, nobody wants to get into ownership litigation over a property that they paid so much money for. Hence, buyers often tend to avoid buying a disputed property.
When a buyer has made all reasonable efforts to find out the material facts of the property before buying it, they are called an Innocent Purchaser for Value. Also known as Bona Fide Purchasers, or good-faith purchasers, they are the rightful owners of the property in the eyes of the law. Even if a third party claims their right on the property in the future, they can only seek to claim damages from the seller who sold it fraudulently. The purchaser shall be considered innocent and the ownership of the property shall remain with them.
When real property is sold, the contract for its sale carries an implied covenant of good faith. According to this doctrine, when a property is sold, the seller is considered to be the true titleholder of the property. He agrees to be the rightful owner with legal rights to sell the property and once the deal is closed, the title is transferred to the buyer in good faith, unless otherwise mentioned, the buyer becomes the bona fide purchaser of the property.
A buyer shall not be considered an Innocent purchaser for Value if he had the knowledge of any legal claims on the property other than that of the seller.
If it is proved that the buyer purchased the property with such knowledge, the rights in the property shall be transferred to the third party to the extent that they were entitled to before the sale of the property.
The buyer, in this case, shall become a mala fide purchaser, i.e a purchase with fraudulent intentions. He shall not be entitled to any damages and will have to give up his rights on the property too.
To prove that the purchase is an innocent purchaser, the buyer must be able to present all the proper documents and deeds that prove his purchase and ownership in the title of the property.
The burden of proving the mala fide intention of the buyer shall lie upon the third party claiming ownership of the title.
