The Statewide Title Newsletter and Legal Memorandum

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Issue  146  Article  243
Published:  9/1/2007

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Transactions with Churches and Non-Profit Associations
Chris Burti, Vice President and Legal Counsel

Transactions involving conveyances by churches and other unincorporated non-profit associations engender much misgiving among practitioners. Often, the concern centers on the issue of confirming proper authority to consummate the transaction. It is very important to not lose sight of the fact that the closing attorney is also certifying to the proper execution of the title instruments as well as to the title record.

In the context of entities and fiduciaries, confirming authority means certifying that the proper officials executed the conveyances and that they and the organization had proper authority as well. With regard to conveyances involving churches and other unincorporated non-profit associations, the practitioners’ concerns are not misplaced as lack of either form of authority is fatal to the validity of a conveyance. The question of legal authority is often relatively easy to resolve. Confirming actual authority is often the harder task. The following is a primer on the topic that may prove useful as a reference in identifying and resolving the issue of authority for real estate transaction in churches and unincorporated non-profit associations.

Churches

Chapter 61 of the North Carolina General Statutes makes provision for property holding by unincorporated religious societies. This Chapter clarifies the right of these associations to hold title as an entity and to convey property. It conforms the body of real property law to the most prevalent practices seen in conveyancing.

Section 61-1 makes provision for trustees to be appointed and removed.

“(a)       The conference, synod, convention or other ecclesiastical body representing any church or religious denomination within the State, as also the religious societies and congregations within the State, may from time to time and at any time appoint in such manner as such body, society or congregation may deem proper, a suitable number of persons as trustees for such church, denomination, religious society, or congregation. The body appointing may remove such trustees or any of them, and fill all vacancies caused by death or otherwise.”

Section 61-2 authorizes trustees to hold title to property.

“The trustees and their successors have power to receive donations, and to purchase, take and hold property, real and personal, in trust for such church or denomination, religious society or congregation; and they may sue or be sued in all proper actions, for or on account of the donations and property so held or claimed by them, and for and on account of any matters relating thereto. They shall be accountable to the churches, denominations, societies and congregations for the use and management of such property, and shall surrender it to any person authorized to demand it”

Section 61-3 vests title to land in trustees, or in societies regardless of the language in the deed.

“All glebes, lands and tenements, heretofore purchased, given, or devised for the support of any particular ministry, or mode of worship, and all churches and other houses built for the purpose of public worship, and all lands and donations of any kind of property or estate that have been or may be given, granted or devised to any church or religious denomination, religious society or congregation within the State for their respective use, shall be and remain forever to the use and occupancy of that church or denomination, society or congregation for which the glebes, lands, tenements, property and estate were so purchased, given, granted or devised, or for which such churches, chapels or other houses of public worship were built; and the estate therein shall be deemed and held to be absolutely vested, as between the parties thereto, in the trustees respectively of such churches, denominations, societies and congregations, for their several use, according to the intent expressed in the conveyance, gift, grant or will; and in case there shall be no trustees, then in such churches, denominations, societies and congregations, respectively, according to such intent.”

Section 61-4 empowers the trustees to convey property.

“The trustees of any religious body may mortgage or sell and convey in fee simple any land owned by such body, when directed so to do by such church, congregation, society or denomination, or its committee, board or body having charge of its finances, and all such conveyances so made or heretofore made, or hereafter to be made, shall be effective to pass the land in fee simple to the purchaser or to the mortgagee for the purposes in such conveyances or mortgage expressed; and they may sell or mortgage its personal property.”

Section 61-5 confirms the legal effect of the ecclesiastical authority of bishops, ministers, etc., to acquire, hold and transfer property.

“Whenever the laws, rules, or ecclesiastic polity of any church or religious sect, society or denomination, commits to its duly elected or appointed bishop, minister or other ecclesiastical officer, authority to administer its affairs, such duly elected or appointed bishop, minister or other ecclesiastical officer shall have power to acquire by gift, purchase or otherwise, and to hold, improve, mortgage, sell and convey the property, real or personal, of any such  church or religious sect, society or denomination, for the purposes, in the manner and otherwise as authorized and permitted by its laws, rules or ecclesiastic polity; and in the event of the transfer, removal, resignation or death of any such bishop, minister or other ecclesiastical officer, the title and all rights with respect to any such property shall pass to and become vested in his duly elected or appointed successor immediately upon appointment or election, and pending appointment or election of such successor, such title and rights shall be vested in such person or persons as shall be designated by the laws, rules or ecclesiastic polity of such church or religious sect, society or denomination.”

“All deeds, deeds of trust, mortgages, wills or other instruments made prior to March 24, 1939, to or by a duly elected or appointed bishop, minister or other ecclesiastical officer, who, at the time of the making of any such deed, deed of trust, mortgage, will or other instrument, or thereafter, had authority to administer the affairs of any church, religious sect, society or denomination under its laws, rules or ecclesiastic polity, transferring property, real or personal, of any such church or religious sect, society or denomination, are hereby ratified and declared valid; and all transfers of title and rights with respect to property, prior to March 24, 1939, from a predecessor bishop, minister or other ecclesiastical officer who has resigned or died, or has been transferred or removed, to his duly elected or appointed successor, by the laws, rules or ecclesiastic polity of any such church, or religious sect, society or denomination, either by written instruments or solely by virtue of the election or appointment of such successor, are also hereby ratified and declared valid.”

“This section shall not affect vested rights, or repeal any of the provisions of G.S. 61-1 to 61-4, or of G.S. 36-21 to 36-23.”

Section 61-6 deals with the situation of an old church on vacant land and it vests title though no deed was recorded.

“All houses and edifices erected for public religious worship on vacant lands, or on lands of the State not for other purposes intended or appropriated, together with two acres adjoining the same, shall hereafter be held and kept sacred for divine worship, to and for the use of the society by which the same was originally established. (1778, c. 132, s. 6; R.C., c. 97, s. 2; Code, s. 3666; Rev., s. 2674; C.S., s. 3572.)”

Clearly, these provisions remove much uncertainty concerning the validity of the various forms of conveyances encountered in searching titles to church properties. While they do not address all issues that are encountered in the deed vault, we can see that the Legislature has manifested a clear intent to validate the questionable deeds an examiner may find while searching the title for one of these organizations.

Non-Profit Associations

Chapter 59B, the Uniform Unincorporated Nonprofit Association Act, effective January 1, 2007, 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 Association’s 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.”

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. The legislation made a conforming change to the text of N.C.G.S. Section 47C-3-101 for condominiums, but there were no such provisions for planned communities under N.C.G.S. Section 47F-3-101.

Actual Authority

While these statutes clarify the right of these associations to hold title as an entity and to convey property, it should be noted that with respect to churches, North Carolina generally respects ecclesiastic law as to the internal governance of church organizations. This leads to a distinction in the application of the statutes between independent churches that operate as a solitary entity and connectional churches that operate as a part of a larger religious body. For a thorough discussion of these distinctions one should read the opinion in Fire Baptized Holiness Church of God of The Americas, Inc. v. McSwain, 134 NC App 676 (1998).

Once a determination of where the source of actual authority lies, one must next review the governing instruments of the organization to determine what requirements must be followed for the organization to properly convey land. The same sort of general protocol must be followed for unincorporated non-profit associations as for churches. For simplicity, we will generally discuss these issues in the context of churches. Connectional churches and associations will usually operate under a code which will often be denominated a Constitution, Bylaw, Canon, Order, Convention, Discipline, Dogma, Charter, etc. It is relatively easy to locate a current copy of these documents. This will also often be the case dealing with independent churches that are affiliated with an established denomination.

Unaffiliated, independent churches and community organizations commonly present greater difficulty in confirming authority for the closing attorney. It is not unusual for smaller organizations to be operating without any formal documentation whatsoever. Much like small closely held businesses, the closing attorney will need to work with these organizations to properly complete formation and adopt organizational documents.

The next step is to review the local records in order to confirm that these requirements have been followed by the church involved. In this instance, the title examiner may well find that the there is inadequate documentation even with connectional churches. Again, in such instances, the closing attorney may need to walk the organization through the process of complying with the requirements of the organizational documents. This may even require that a new notice, meeting and vote be held by the membership to ratify the transaction. Once the ratification and documentation process is completed properly, the clerk of the organization can supply the closing attorney with a properly certified copy of the resolution in the same fashion as one would require of a closely held corporation.


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