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Recorded Options & Rights of First Refusal

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Recorded Options & Rights of First Refusal

Reusable edge-case explainer. Legal information, not legal advice. Last verified: 2026-06-02.

What this edge case is

A pre-existing, recorded option to purchase or right of first refusal (ROFR) — also called a preemptive right or right of first offer — sits in the chain of title before the lien being foreclosed. The instrument gives a third party (commonly a former grantor, an adjacent owner, a tenant, a co-tenant, a homeowners’ or condominium association, or a related entity) the contractual power either to compel a sale to itself (an option) or to match a sale the owner chooses to make (a ROFR). When the property then runs through a tax-deed or mortgage-foreclosure sale, two distinct questions arise:

  1. Survival — does the recorded interest survive the sale and bind the foreclosure-sale purchaser, or is it wiped out as a junior interest?
  2. Triggering — does the foreclosure sale itself trigger the ROFR, so the holder may step in and buy at the sale price (or block the sale until it is given the chance to match)?

The two questions have different answers, and both turn on (a) where the instrument sits in the priority waterfall, (b) whether it “runs with the land,” and (c) the precise triggering language in the covenant. A missed ROFR or surviving option is a classic cloud on title that can defeat marketable title, block title insurance, and expose the purchaser to a suit by the holder.

When it arises (tax and mortgage foreclosure contexts)

  • Mortgage / deed-of-trust foreclosure. A ROFR or option recorded before the mortgage is senior to the foreclosing lien; a foreclosure of the junior mortgage does not extinguish it, and the purchaser takes subject to it. Recorded after the mortgage, it is junior and is generally extinguished by the senior lien’s foreclosure under ordinary first-in-time priority — the same rule that wipes out junior liens.
  • Tax-lien / tax-deed foreclosure. Ad valorem property-tax liens are super-priority in nearly every jurisdiction and generally prime all private encumbrances regardless of recording date, so a properly conducted tax foreclosure ordinarily extinguishes even a senior-recorded private ROFR or option — but only if the holder received the constitutionally required notice. A recorded preemptive right makes its holder a party in interest entitled to notice; skipping that notice can void the sale as to the omitted holder.
  • Deed in lieu / negotiated transfer. A deed in lieu is a voluntary conveyance and is far more likely to trigger a ROFR than a forced sale (see triggering analysis below) — lenders taking a deed in lieu over a known ROFR risk later attack by the holder.
  • The “circumvention” scenario. A buyer who wants to defeat a ROFR could in theory take a mortgage from the owner and then foreclose, or take a deed in lieu, to launder the transfer through an “involuntary” sale. Courts are alert to this and have warned against readings that let preemptive rights be extinguished by manufactured foreclosures (see Welch, below).

A ROFR/option is an interest in land that can run with the land — or not

Whether a recorded preemptive right binds a foreclosure-sale purchaser turns on whether it “runs with the land.” Ohio’s leading modern decision sets out the standard three-factor test and applies it to both an option and a ROFR: Wells Fargo Bank, N.A. v. Michael, 2013-Ohio-2545 (7th Dist.). For a restrictive covenant to run with the land, “(1) the intent of the original parties … must have been for the covenant to run with the land[,] [t]he second is that the covenant must touch and concern the land[,] [and the third is] privity of estate.” The court held the repurchase option there did not run with the land because its language “gives that right to the [grantors]” and their descendants personally, “not [to] subsequent owners,” so it “does not survive foreclosure.” Source: Wells Fargo Bank, N.A. v. Michael, 2013-Ohio-2545 (Ohio 7th Dist., retrieved 2026-06-02).

The corollary: a preemptive right drafted to bind successors and assigns, that touches and concerns the land, and that is recorded (supplying constructive notice and privity to later takers), is an interest a foreclosure purchaser can take subject to where it is senior in priority.

Recording supplies the notice that binds successors

A preemptive right is enforceable against a subsequent purchaser only if recorded or otherwise known: “a third-party interest in property is binding on a subsequent purchaser for value if it was duly recorded or the purchaser had notice of the interest.” An unrecorded ROFR is void against a bona fide purchaser for value without notice — and once a BFP takes free of it, that protected status passes to all later owners. Source (summarizing Mr. W Fireworks, Inc. v. 731 Props., LLC, Tex. App.): Texas A&M AgriLaw, “Rights of First Refusal and the Importance of Record Notice” (secondary, retrieved 2026-06-02).

Foreclosure usually does not trigger a ROFR — the voluntary/involuntary line

The dominant rule is that a forced foreclosure sale is not a triggering event for a ROFR whose language presupposes a voluntary sale (an “offer,” a “written contract,” an “arms-length” or “willing-seller” sale). Wells Fargo v. Michael held that because the ROFR there “require[d] an ‘arms-length’ negotiation[,] [a] foreclosure sale is not derived from an ‘arms-length’ negotiation because it is a forced sale, not a voluntary sale,” quoting:

“A judicial sale of property upon foreclosure occurs only when the owner has defaulted on the debt. … [T]he owner did not make her own sale. … A forced sale by its very nature is less likely to bring the full value of realty than an arms-length transaction.”

Source: Wells Fargo Bank, N.A. v. Michael, 2013-Ohio-2545, ¶¶ 42–43 (quoting Advance Mortgage Corp. v. Novak, 8th Dist. No. 36267, 1977 WL 201469).

The Michael court collected concurring authority from five states, each holding that a ROFR keyed to a voluntary/arms-length sale is not triggered by an involuntary foreclosure, condemnation, or judgment sale:

  • Tadros v. Middlebury Med. Ctr., Inc., 263 Conn. 235, 820 A.2d 230 (2003) — ROFR requiring the grantee to “form the intention” to sell and accept a bona fide offer requires a voluntary sale; foreclosure did not trigger it. Source: Tadros v. Middlebury Med. Ctr. (Conn. Judicial Branch, retrieved 2026-06-02).
  • Huntington Nat’l Bank v. Cornelius, 80 A.D.3d 245, 914 N.Y.S.2d 327 (2010) — “offer,” as used in the covenant, meant “a conscious and voluntary choice … to make the property available for sale”; foreclosure, being involuntary, did not invoke the ROFR (cited in Michael ¶ 45).
  • Benefit Realty Corp. v. City of Carrollton, 141 S.W.3d 346 (Tex. App. 2004) — ROFR applied only to a voluntary sale; a condemnation taking is involuntary and did not trigger it (cited in Michael ¶ 45).
  • Pearson v. Schubach, 52 Wash. App. 716, 763 P.2d 834 (1988) — court-ordered sale to satisfy a judgment was involuntary and did not trigger a lessee’s ROFR, which required a “willing” seller (cited in Michael ¶ 45).
  • Henderson v. Millis, 373 N.W.2d 497 (Iowa 1985) — given the agreement’s language, the ROFR could not be exercised in the context of a foreclosure sale (cited in Michael ¶ 45).

Critically, this is a rule of contract construction, not an absolute bar. The Michael court was explicit: “our decision does not stand for the proposition that foreclosure can never be a triggering event for a right of first refusal. The covenant could be drafted in a manner that renders foreclosure a triggering event.” Source: Wells Fargo Bank, N.A. v. Michael, 2013-Ohio-2545, ¶ 46.

The contrary pull — when courts let a ROFR survive a foreclosure

A Tenth-District Ohio decision the Michael court distinguished, National City Bank v. Welch, 188 Ohio App.3d 641, 2010-Ohio-2981, 936 N.E.2d 539 (10th Dist.), enforced a ROFR despite a foreclosure where the covenant was triggered by an “offer for sale” (there, on the grantor’s death) and the bank had notice of the covenant. The Welch court warned that the opposite rule “would set a precedent that in effect extinguishes preemptive rights altogether: [a]nytime a person wanted to buy a property … subject to preemptive rights … the interested buyer could simply take a mortgage … and then foreclose (or take a deed in lieu of foreclosure).” Quoted in Wells Fargo Bank, N.A. v. Michael, 2013-Ohio-2545, ¶¶ 44, 47. The practical lesson: triggering turns on the exact words of the instrument plus the purchaser’s notice, and a recorded covenant drafted to reach involuntary transfers can survive.

Validity overlays — perpetuities and restraints on alienation

Even a clearly drafted, recorded preemptive right may be void or unenforceable under property doctrine that limits future interests in land:

  • Rule against perpetuities. At common law, a fixed-price option to purchase land that may be exercised beyond the perpetuities period is void; the modern Restatement (Third) of Property (Servitudes) instead exempts options and rights of first refusal from the rule against perpetuities, testing them under the reasonableness-of-restraints standard rather than the “lives in being plus 21 years” period. Source (Restatement (Third) of Property (Servitudes), via ALI / Cornell): ALI, Restatement of the Law, Property (Servitudes) (retrieved 2026-06-02). States are split between the common-law rule and the Restatement approach.
  • Unreasonable restraints on alienation. “A servitude that imposes a direct restraint on alienation of the burdened estate is invalid if the restraint is unreasonable,” weighing the restraint’s utility against its injurious consequences. Restatement (Third) of Property (Servitudes) § 3.4. A ROFR at a below-market fixed price held open indefinitely is the paradigmatic vulnerable instrument. Source: Restatement (Third) of Property (Servitudes) § 3.4 (retrieved 2026-06-02).

Government preemptive rights that survive by statute

Some preemptive/redemption rights survive a foreclosure sale by federal statute regardless of the private-covenant analysis above:

  • United States right to redeem after a senior-lien foreclosure. Where a federal tax lien is junior to the foreclosed lien, the United States retains a statutory right to redeem the property for 120 days (or the longer state-law period) after the sale — 28 U.S.C. § 2410(c) (judicial sales) and 26 U.S.C. § 7425(d) (non-judicial sales). The redemption price is the purchaser’s bid plus 6% interest, payments to senior lienholders, and net maintenance costs. The United States must be named as a party in any judicial action affecting property on which it claims a lien. 28 U.S.C. § 2410(a). Until it expires, this right operates as a recognized cloud on the foreclosure purchaser’s title. Sources: 28 U.S.C. § 2410 (LII, retrieved 2026-06-02); IRM 5.12.5.2, 5.12.5.3.7 (IRS, retrieved 2026-06-02).

State-by-state variation

The voluntary/involuntary triggering rule is widely shared but expressed through each state’s own cases, and the survival question rides on each state’s lien- priority and tax-sale statutes (tracked on the linked jurisdiction pages). The underlying triggering authorities below were each verified.

JurisdictionVariationCitation
ohioROFR/option construed against triggering by a forced foreclosure sale absent express language; option personal to grantor does not run with land; but recorded ROFR with notice may survive (Welch)Wells Fargo v. Michael, 2013-Ohio-2545
connecticutROFR requiring intent to sell + acceptance of bona fide offer not triggered by foreclosure (involuntary)Tadros v. Middlebury Med. Ctr., 263 Conn. 235 (2003)
new-york”Offer” = conscious, voluntary choice to sell; involuntary foreclosure does not invoke ROFRHuntington Nat’l Bank v. Cornelius, 80 A.D.3d 245 (2010) (per Michael ¶ 45)
texasROFR limited to voluntary sale; involuntary condemnation taking does not trigger; recording is essential to bind a BFPBenefit Realty Corp. v. City of Carrollton, 141 S.W.3d 346 (Tex. App. 2004) (per Michael ¶ 45); AgriLaw, Mr. W Fireworks
washingtonCourt-ordered judgment sale is involuntary; ROFR requiring a “willing” seller not triggeredPearson v. Schubach, 52 Wash. App. 716 (1988) (per Michael ¶ 45)
iowaROFR could not be exercised in a foreclosure sale given the agreement languageHenderson v. Millis, 373 N.W.2d 497 (Iowa 1985) (per Michael ¶ 45)
Federal (all)US retains 120-day redemption after senior-lien foreclosure where federal tax lien is junior; must be named in judicial actions28 U.S.C. § 2410; 26 U.S.C. § 7425(d)

Operator due diligence

Steps to identify and manage the risk before bidding:

  1. Read the full chain of title, not just the deed and mortgage. Pull every recorded instrument and look for “option,” “right of first refusal,” “preemptive right,” “right of first offer,” “repurchase,” and “right to repurchase” — these are frequently buried in old deeds (as restrictive covenants), leases, co-tenancy agreements, condo/HOA declarations, and ground leases.
  2. Date-stamp priority. Compare the recording date of any preemptive right to the foreclosing lien. Senior to the lien → may survive a mortgage foreclosure; junior → generally extinguished. For a tax foreclosure, treat even senior private rights as extinguishable only if the holder got proper notice.
  3. Read the triggering language verbatim. “Offer,” “arms-length,” “voluntary sale,” or “willing seller” language usually means a foreclosure does not trigger the ROFR. Express references to “foreclosure,” “involuntary sale,” “any transfer,” or “deed in lieu” mean it may — and the holder can appear at or after the sale.
  4. Confirm the holder received notice. Verify that any recorded-right holder was named and served in a judicial foreclosure, or noticed in a tax sale. An omitted holder is a due-process and title defect.
  5. Test validity. Flag fixed-price or perpetual ROFRs for rule-against- perpetuities and unreasonable-restraint-on-alienation challenges under the governing state’s law.
  6. Screen for government rights. Run a federal tax lien check; a junior federal lien leaves a 120-day US redemption cloud after the sale (28 U.S.C. § 2410(c); 26 U.S.C. § 7425(d)).
  7. Order title and ask the insurer to insure over it. A surviving option or ROFR is precisely the kind of exception a title underwriter will except from coverage; clearing it usually requires a release, a quiet-title action, or waiting out a redemption window.

▸ For Investors / Operators. A recorded option or ROFR senior to the foreclosed lien is a survival risk; a junior one is usually wiped out — but a missed holder who never got notice can unwind your title regardless. Read the triggering words: “arms-length” / “willing-seller” ROFRs generally do not trigger at a forced sale, while “any transfer” or express “foreclosure” language can let the holder step in. Price the cure — release, quiet title, or a waiting period — into your bid, and screen for the federal 120-day redemption cloud.

▸ For Former Owners. If you sold the property subject to a repurchase option or right of first refusal you retained, a foreclosure may or may not extinguish it — read your covenant’s exact language and check whether you were properly noticed in the action. Separately, any surplus-funds left after the tax or mortgage debt is paid still belong to you, and deadlines to claim them are short.

If it happens

Exposure to the foreclosure-sale purchaser. If a senior, recorded preemptive right survives, the purchaser takes title subject to it: the holder may compel a conveyance (option) or force the purchaser to offer the property on the covenant’s terms (ROFR). The purchaser’s remedies are to (a) obtain a release from the holder, (b) bring a quiet-title action to adjudicate that the right was extinguished or not triggered, or (c) attack the instrument’s validity (perpetuities / unreasonable restraint). If the right was extinguished by a senior foreclosure but the holder still clouds title, a quiet-title or declaratory action removes it.

Exposure from a missed/omitted holder. A preemptive-right holder who was a necessary party but not joined or noticed may move to vacate the sale or to foreclose-out the omitted interest in a supplemental proceeding (a “re- foreclosure” or strict-foreclosure of the omitted party), echoing the omitted- junior-lienholder cure. This is why notice verification is non-negotiable pre-bid.

Remedies of the right-holder. A holder whose triggered ROFR was ignored may seek specific performance (a conveyance at the matched price), an injunction against the competing transfer, lis pendens to freeze the title, or damages. Where the covenant did not reach a foreclosure, the holder’s claim fails as a matter of construction (Michael, Tadros, Pearson).

Federal redemption. If the United States held a junior tax lien, expect the 120-day cloud (28 U.S.C. § 2410(c)); the purchaser cannot deliver clear title or typically obtain full title insurance until it lapses or the IRS releases it (see federal-tax-lien-redemption).

lien-priority-waterfall-reading, junior-lien-purchase-risk, quiet-title-after-tax-sale, title-insurance-and-deed-seasoning, federal-tax-lien-redemption, due-process-notice, deed-in-lieu-of-foreclosure, eminent-domain-overlap, lis-pendens, surplus-funds, third-party-recovery-rules, ohio, connecticut, new-york, texas, washington, iowa

Sources

Legal information, not legal advice. This page summarizes statutes, the Restatement, and case law as of the last_verified date; the survival and triggering of a recorded option or right of first refusal turn on the exact instrument language, recording priority, notice, and the governing state’s property and tax-sale statutes, all of which vary. Several cited out-of-state holdings are reported here as collected and relied upon in Wells Fargo v. Michael and should be read in full before relying on them. Consult a licensed attorney before acting.

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