Volume 11 Number 2

 

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Title Tips by Tute

Volume 11, Number 2

 

Dear Tute:

            What's going on with churches?  I was asked to search a small church property, and not only did they not have trustees, it looked like the church claimed to be a corporation.  I thought that wasn't allowed?  Have the rules changed?

                                                                                    Ecumenical Ed

 

Dear Ed:

The rules changed somewhat for churches, but not a lot.  I'll start with a little history. 

            Once upon a time, roughly from 1786 until 2002, the Virginia constitution prohibited a church from incorporating.  The most recent citation for that prohibition was Article IV, Section 14 (20) (second paragraph).  The text read:  "The General Assembly shall not grant a charter of incorporation to any church or religious denomination, but may secure the title to church property to an extent to be limited by law."

This prohibition was the work of Thomas Jefferson and James Madison, two gentlemen Tute is not old enough to have known personally, but by all accounts they were both pretty smart fellows.  Jefferson wrote the Virginia Act of Religious Freedom (if I remember my history correctly), and Madison was its legislative proponent.  Not being a student at the "THE University," it was not required for graduation that this humble title examiner memorize the three accomplishments Jefferson listed on his tombstone, but I think this Act could have been one of the three.  For the curious, the Act remains part of the Virginia Code today, being "recited" as 57-1; the second full week of every January is designated as Religious Freedom Week in the Commonwealth of Virginia, and January 16th is Religious Freedom Day.  57-2.01.

Neither did I study political philosophy, but I believe the underlying rationale may have had something to do with protecting smaller "free-thinking" churches from the state (and the state church of the time, known as the Established Church, aka the Church of England, aka the Anglican Church, aka the Episcopal Church) You may recall the occasional reference to "glebe" lands in some of your older title searches; those were references to land held by the established church.  The close relationship between the established church and the state can be seen in 57-3 and 4.  Local governments now administer the proceeds from glebe lands and donations to the vestry. The powers to grant, deny, and renew or decline renewal of a corporate charter may have been perceived by Jefferson and Madison as giving the state power over the very existence of the church.

In April, 2002, in the United States District Court for the Western District of Virginia (coincidentally, in the same week the United States Supreme Court handed down the Craft decision), struck Virginia's prohibition and ordered the State Corporation Commission to give Virginia evangelist Jerry Falwell a corporate charter for his Thomas Road Baptist Church. Falwell v. Miller, (Civil Action No. 6:01CV00075, decided April 15, 2002).

What does all this mean for the title examiner?  It means churches may now hold title in at least three different ways.  Title examiners may need to become more knowledgeable about the internal workings of the various religious denominations, so they can predict the sort of documentation they should be uncovering during the examination. 

As a result of the Falwell decision, title may be held as a corporation.  For the title examiner, this should not require any new processes or procedures.  Title needs to be vested in the corporation, and the deed or deed of trust needs to be signed by an authorized officer.  Given the number of small churches that abound, it may be appropriate to note that a pastor, an alderman, a deacon and a bishop are generally not corporate officers, and any deed signed by such an officer should be accompanied by a recorded resolution authorizing that person to act for the corporation.  Lacking such a resolution, the title examiner may be forced to rely on the statutory default provision, 55-119, which states 

All deeds made by corporations shall be signed in the name of the corporation by the president or acting president, or any vice-president, or by such other person as may be authorized thereunto by the board of directors of such corporation, and, if such deed is to be recorded, the person signing the name of the corporation shall acknowledge the same in the manner provided by 55-120.

  The majority of church properties are vested in trustees, pursuant to the statutory scheme for unincorporated associations set out in Title 57. This portion of the Code is also applicable to other unincorporated associations, such as Freemasons, Odd Fellows, Sons of Temperance, posts of Veterans of Foreign Wars or of the American Legion, Spanish War Veterans, Disabled American Veterans and of other associations of veterans of the armed forces of the United States, or any other benevolent or literary associations, or school league, or other groups organized for rural community civic purposes or improvement of farm life or operations of like purposes and not for profit.  57-19.  Title is vested in trustees for the benefit of the church; the local circuit court appoints (upon motion by the church) or records the elections of new trustees, and authorizes the trustees to sell or encumber the church's land.  The Court can authorize a church fiscal officer or treasurer to sign the instruments of indebtedness secured by a deed of trust, 57-15.1, but absent an express authorization from the court, the trustees would still be expected to sign the deed of trust.  Other portions of Title 57 address such issues as congregations dividing into different factions.

            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 deed, devise, gift, purchase or otherwise, any real or personal property, for any purpose authorized and permitted by its laws, rules or ecclesiastic polity, and not prohibited by the laws of Virginia, and the power to hold, improve, mortgage, sell and convey the same in accordance with such laws, rules and ecclesiastic polity, and in accordance with the laws of Virginia. 57-16.  The church best known for holding title in this manner is the Roman Catholic Church.  This closely resembles a form of title holding which goes back to the earliest years of the Commonwealth, a form known as the corporation sole.  In some other states, there is a separate chapter in the title governing corporations dealing with this concept.  Under this form of organization, the ecclesiastical officer is the title holder, and the proper person to convey or encumber the property.

            In the hope that this column provides actual helpful information, as well as a lot of theoretical hot air, I provide the following title nugget in the event you need to examine title to a Catholic Church:  Francis Xavier DiLorenzo replaced Walter F. Sullivan as Bishop of the Richmond Diocese in May 2004.

            The General Assembly did enact a bill setting up a study commission to transition through the change caused by the Falwell case.  I do not know the results, if any, of that study commission's meetings.  Probably under some pressure to facilitate the changeover, the General Assembly attempted to pass a bill allowing trustee-holding churches to change over to corporate-holding churches with a minimum of procedural interference.  The language was open to interpretations not intended, and most of the bill was deleted.  One portion that was enacted provides the same recording tax treatment for corporate-holding churches as for trustee-holding churches. 

            There does not seem to be a prohibition against a church organizing as a limited liability company, which, by definition is an unincorporated association, 13.1-1002, or as some other form authorized by statute, but this title examiner has yet to see one.  Just as was the case with the corporate entity, the church would need to comply with all the usual requirements for their choice of entity.

 

                                                                                             Tute

 

 

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