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Issue  133  Article  223
Published:  8/1/2006

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New Nonprofit Association Act
Chris Burti, Vice President and Legal Counsel

SB 1479 The legislation creates a new Chapter 59B enacting the Uniform Nonprofit Association Act that will become effective January 1, 2007. This Act is in many respects a codification of legal and equitable doctrines. More importantly, it addresses issues of concern to real property practitioners to which our courts and legislature have not previously spoken. Many principles have been codified in a manner that confirms what we assumed the law is and others that we assumed the law should be.

Section 59B-5 defines the status of a nonprofit association as an entity entitled to hold and convey real and personal property as a grantee, devisee, or beneficiary. A nonprofit association is defined by this section as a legal entity separate from its members for the purposes of owning, encumbering, and transferring real. A nonprofit association may acquire, hold, encumber, or transfer an estate or interest in real in its name. It may be a beneficiary of a trust or contract, a legatee, or a devisee.  The lien of any judgments attaches to its real property as if it were incorporated.

Section 59B-6 makes provision for a recordable document referred to as a “statement of authority as to real property” styled as an "affidavit". The nonprofit association may execute and record a statement of authority to transfer an estate or interest in real property in its name. It must be recorded in the office of the register of deeds in the county where the land is located. Then, the person authorized in the recorded statement may transfer real property held in the name of the association.

The affidavit must contain all of the following information:

(1) The name of the association.

(2) The street and mailing address, and the county in which it is located.

(3) A statement that the association is an unincorporated nonprofit association.

(4) The name or office of the person authorized to transfer real property.

(5) That the association has duly authorized the person executing the statement to do so.

(6) It must be sworn to and subscribed in the same manner as an affidavit by someone other than the person authorized to transfer the property.

A recorded statement of authority or its most recent amendment expires automatically five years after the date of the last recording unless terminated earlier.  An amendment or termination must be executed with the same formality as an original statement. A purchaser for value without knowledge of any lack of authority is entitled to conclusively rely on the recorded statement for a transfer of property in that county.

Section 59B-10 deals with the disposition of the personal property of an inactive nonprofit association. Unfortunately, the Act does not make a similar provision for real property.  If it has been inactive for more than three years, or any different period specified in the organizational documents of the association, a person in possession or control of personal property of the nonprofit association may transfer custody of the property:

“(1) If a document of the nonprofit association or document of gift specifies a person to whom transfer is to be made under these circumstances, to that person; or

(2) If no person is so specified, to a nonprofit association, nonprofit corporation, or other nonprofit entity pursuing broadly similar purposes, or to a government or governmental subdivision, agency, or instrumentality.”

The Act makes provision for tort protection of members, access to the courts and procedural provisions similar to those that are provided for nonprofit corporations that will be of interest to attorneys representing such organizations. In particular, Section 59B-8(b) specifically deals with the question of the Associations capacity to assert and defend; and its standing in an action affecting less than all of its members. This is of significant concern in the area of a Homeowners Association’s ability to prosecute covenant interpretation cases. The operative language is as follows.

“A nonprofit association may assert a claim in its name on behalf of its members or persons referred to as "members" by the nonprofit association if one or more of them have standing to assert a claim in their own right, the interests the nonprofit association seeks to protect are germane to its purposes, and neither the claim asserted nor the relief requested requires the participation of a member or a person referred to as a "member" by the nonprofit association.”

Section 4 of the Bill makes a conforming change to the text of N.C.G.S. Section 47C-3-101 with respect to nonprofit homeowners associations. The Bill contains several other provisions making conforming changes to other statutes.

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