Beware of Transactions Involving Church Property – Land Title Association of Mississippi

The organization of churches takes many different forms. Sales, leases, and mortgages of church property must be properly authorized. Generally, a congregational church may authorize its own transactions, following its own formalities, but a hierarchical church (e.g., one that adheres to an Episcopalian or Presbyterian structure) must generally obtain approval from its governing body outside the local church.

Generally, there are three questions to consider when dealing with sales, leases, and mortgages by churches:

How is the church organized?
Does the local church have a constitution or bylaws or other governing documents?
Is the church congregational or hierarchical (e.g., Episcopalian or Presbyterian), which is affiliated with a diocese, conference, synod, convention or another similar governing body (e.g., general church)?

Church organization

Churches and religious organizations may be legally organized in a variety of ways under state law, such as unincorporated associations, nonprofit corporations, corporation sole, and charitable trusts. See Tax Guide for Churches & Regulations. In Mississippi, however, churches are generally found in one of the following forms:

Nonprofit corporations – Miss. Code Ann. § 79-11-101 et seq.
Unincorporated religious societies – Miss. Code Ann. § 79-11-31

It is important to know how the church is organized. An unincorporated religious society or church is governed by Miss. Code Ann. § 79-11-31. Regardless of whether the title was acquired in the name of the trustees or in the name of the unincorporated church itself, it would vest as a matter of law in the trustees. In addition, the statute sets forth requirements regarding the approval of transactions involving church property. A regular or special meeting of the congregation must be called for the purpose of authorizing the sale of church property (or the making of the loan and the giving of the mortgage), and at least 20% of the members in good standing of the congregation must be in attendance. At least a majority of the members in attendance must vote in favor of authorizing the sale of church property (or the making of the loan and the giving of the mortgage).

On the other hand, if a church has been incorporated then the church’s governing documents (bylaws) would need to be consulted to determine the notice required to be given and how the members must go about approving transactions involving church property.

Church government

There are three basic forms of church government:

Episcopalian
Presbyterian
Congregational

The first, the Episcopalian model, is based on the Catholic concept of Bishops. Every church has a senior pastor or priest, but despite this local leader, the primal “legal leader” within the local church is the bishop. Bishops have varying levels of authority depending on the denomination; but, the idea is that there is an apostolic line of leaders who have presided over the churches since the days of the Apostle Peter. Local churches need to submit to these non-local leaders (e.g., the general church). The Episcopalian form of church government is common among Catholics, Episcopalian/Anglican, some Lutherans, and many Methodists.

The second, the Presbyterian model, is essentially an “elder-run” system. Gaining steam through the Reformation, this model essentially gives final authority to a group of elders (called a “session”) within a local church. Elders are not merely focused on finances (which the I.R.S. terms a “trustee”); elders are essentially on par with the senior pastor (who is merely the “teaching elder”) and run the local church. Some session elders from each local church are elected to a regional presbytery, which governs over the general church. This “board run” system can be found in many Presbyterian or Reformed churches. It’s also common among many traditional Evangelical denominations.

Finally, the Congregational model is founded upon the concepts of democracy and autonomy. Each church is essentially independent and self-governing. Congregationalism emerged as a reaction against Episcopalian-styled systems where distant bishops could unilaterally dictate local policies. Thus, congregationalism primarily means that a church is “locally self-governed” more than it means “democratic”. Generally, any independent or nondenominational church could be considered congregational. However, many congregational churches have some form of a democracy or republic at work in their structure. (i.e., to some greater or lesser degree, the congregation has the opportunity to vote.) Some congregational churches limit their church wide votes only to major issues – leaving larger amounts of freedom up to various boards. But the highest authority essentially rests in the congregation. A common example of congregational churches can be found in the Baptists or Evangelical Covenant Church.

Church property disputes – neutral principles of law

Mississippi has adopted the “neutral principles of law” approach for resolving church property disputes. Schmidt v. Catholic Diocese of Biloxi, 18 So. 3d 814, 824 (Miss. 2009) (citing Church of God Pentecostal v. Freewill Pentecostal Church of God, 716 So.2d 200, 206 (Miss.1998)). The neutral-principles approach “relies on objective, traditional concepts of trust and property law….” Id. at 205. “It calls ‘for the completely secular examination of deeds to the church property, state statutes and existing local and general church constitutions, by-laws, canons, Books of Discipline and the like….’ “ Id. (quoting Protestant Episcopal Church in Diocese of N.J. v. Graves, 83 N.J. 572 (N.J.1980), cert. denied sub nom. Moore v. Protestant Episcopal Church in Diocese of N.J., 449 U.S. 1131 (1981)). Religious documents must be carefully scrutinized in purely secular terms without relying on religious precepts. Church of God Pentecostal, 716 So.2d at 205–06 (citing Jones v. Wolf, 443 U.S. 595, 604 (1979)). If a deed, corporate charter, or religious document incorporates religious concepts in its provisions concerning ownership of the property, the court must defer to the authority of the ecclesiastical body so as to avoid resolving any religious controversy. Id. (citing Serbian Eastern Orthodox Diocese v. Milivojevich, 426 U.S. 696, 709 (1976)).

Given the above, it is important to determine whether (a) the church is a congregational church or hierarchical church (e.g., Episcopalian or Presbyterian), which is affiliated with a diocese, conference, synod, convention or another similar body, and (b) the governing documents for the church or vesting deed(s) for church property contain any language that may create a trust interest, reverter or other reservation in favor of the diocese, conference, synod, convention or other similar body or other provisions that warrant further inquiry. Trust, reverter and reservation clauses are common in church deeds and certain church denominations have included trust clauses in their canon laws, constitutions, and other ecclesiastical documents.

Conclusion

Dealing with church property is not an easy task. First, it requires an understanding of the church’s legal organization (unincorporated religious society vs incorporated nonprofit). Second, it requires an understanding of the internal church government. Finally, it requires an understanding of the local church’s relationship with a larger church body and whether the property could be held in trust. The circumstances surrounding the transfer of any church property should be investigated. If there is any indication that the conveyance is related to a conflict within the congregation or denomination, you should consult your Underwriting Counsel for assistance.