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Insuring Religious Entities:
Is There a Higher Authority?

By Gytis L. Nefas, Esq.

Singer Katy Perry thought she had a deal with the Catholic Church to buy a residence in Los Angeles, which was formerly used as a convent by the Sisters of the Immaculate Heart of Mary. The villa style compound on Waverly Drive was donated to the sisters’ order in 1972, The California Institute of the Sisters of the Most Holy and Immaculate Heart of the Blessed Virgin Mary, a California non-profit religious corporation.

While negotiations were pending with the Catholic Archdiocese, a deed from the sisters recorded in favor of a local developer. The deed was signed by the chief financial officer of the sisters’ not-for-profit corporation. The Archdiocese filed a lawsuit to set aside the conveyance.

Who has the authority to sell the property donated to the sisters and vested in their separate corporate entity? The sisters’ order or the greater Archdiocese?

This is an example of some of the doubt that can surround ownership and control of real property within and regarding religious organizations. The confusion and uncertainty extend to all varieties of denominations regarding who owns, who can sell and who can borrow on behalf of a religious entity. Courts struggle with these questions, trying to avoid crossing the line of resolving church property disputes based on religious doctrine in violation of the First and Fourteenth Amendments to the United States Constitution. In such cases, the courts defer the resolution of property issues to the church hierarchy where religious doctrine controls.

Who Has Authority?

Given the lack of certainty that could affect a church property transaction, how does a title company properly sort out religious entity authority? Understanding the landscape of the nature of ownership forms available to churches for holding property is a good start. Authority over church property could depend on the nature and facts surrounding the transaction. Entity authority is a moving target when it comes to churches. There is no standard legal formula for religious entities. There are no clear standard church protocols, so a title agent needs to dig a little deeper.

Insuring transactions involving religious entities raises unique concerns not typically encountered when dealing with a business or other type of entity. Religious organizations can be formed under a variety of structures available under state statutes, including not-for-profit corporations, religious corporations, charitable trusts, and corporate sole and unincorporated associations. Even under a corporate structure, determining who has authority to encumber or convey may not be apparent from the By-laws and Articles of the incorporation alone. In the case of non-profit religious corporations, some jurisdictions, such as California, require written notice to the state’s Attorney General before the sale, lease or conveyance of assets.

To further complicate the issue of authority, differing church rules may apply for the type of transaction or the dollar amount involved. Under Catholic canon law, the Vatican (the Pope) must approve transactions over certain dollar amounts, depending on the local diocese. These rules may exist in the Constitution and Canons, Rules, Regulations and Discipline of the church, which are not usually publicly available. Where authority may exist for certain transactions, such as for a loan or refinance, it may not exist for a sale or other type of transaction, depending on internal church rules.

Religious organizations fall into two general categories as either congregational or hierarchical.

Congregational churches are typically community churches, which are stand-alone entities independent of other churches or larger religious associations. A hierarchical church is part of a larger organization, in which the individual church entities are answerable to higher church entity authority. Most of the major religious organizations, such as Methodist, Catholic, Protestant or Episcopal, are hierarchical organizations. The local parishes for these denominations are typically subject to limitations imposed by the higher organizational authority.

When dealing with a church’s corporate structure, obtain the Articles, By-laws and Amendments or Resolutions. When possible, verify the corporate existence and good standing with the applicable Secretary of State’s office. Be sure to read the documents completely. Certain transactions such as buying, selling or refinancing, may be subject to approval from a higher church office or may require approval of a majority vote of the members of the congregation or board of directors, elders or deacons. It would be prudent to obtain confirmation from the greater church hierarchy confirming local church authority where possible.

Local community churches offer different concerns and challenges. Many of these are denominations with smaller congregations and possibly greater member involvement. Community churches are more likely to be unincorporated associations. State governing law must allow for unincorporated associations to hold property. Internal rules and meeting minutes of the church and governing body must be obtained, assuming they exist. If not, this may be an impediment to insuring the transaction.

Title Agent’s Role

Given the nuance and complications that may accompany any transaction involving church authority, your NATIC/Doma underwriting counsel should be consulted in every instance, whether refinance, finance or sale involving church real property. As much information as possible should be collected in every case. The sale or hard money loan by a church should be closely scrutinized. In all respects, church transactions are considered an extra-hazardous risk.

Katy Perry Case

What was the result of the sisters’ sale to the local developer? Katy Perry and the church were awarded $10 million in damages from the developer for fraud and malice in having recorded the deed from the order of nuns. The Los Angeles Catholic Archdiocese received the property back from the developer. The sisters’ sale was deemed without authority notwithstanding that the property was vested in the sisters’ corporation. The sale required Vatican approval due to the high dollar value of the property.

Gytis Nefas is Vice President, Senior Underwriting Counsel, California, for North American Title Insurance Company/Doma.