In re: Kennedy, No. 09-64432-fra7 (Bankr. D. Oreg., January 19, 2011).
Mildred Schoor, an 85 year old woman, lived with her husband on a property in Hubbard, Oregon. She owned the property free and clear in 2005, when she was approached by a realtor in RE/MAX Equity Group, who offered to purchase her home for less than half its value. However, the agreement awarded Mildred a lifetime lease on the property, and she would pay no rent for five years, and $500 a month thereafter.
In 2007, the realtor used the property as security for a loan of $225,000. He subsequently defaulted on the loan, and the lender sought to foreclose on the property. The realtor filed for bankruptcy in 2009. Mildred sought a judgment from the court declaring that her lifelong lease has priority over the $225,000 debt from the bank, meaning that she cannot be evicted.
In securities law, an innocent purchaser who has no notice of another's party's claim to the property they purchase has a superior right to the property over the transferor's creditor. This is called a Bone Fide Purchaser (BFP), and it is the defense asserted by the bank in this case. This means that the bank, if it successfully showed itself to be a BFP, would have priority over Mildred's unrecorded leasehold interest in the property.
The court sided with Mildred, and have her lease priority over the bank's lien. The court reasoned that, because the bank had constructive notice (the fact that she actually lived there) of Mildred's lease at the time they were given an interest in the property, it cannot claim it was bona fide purchaser. If the bank had made any reasonable inquiry about the property in question, it would have found Mildred leasing the property. Therefore, the bank had no excuse for not being aware of the lease, and was not a bone fide purchaser.
