Religious Organizations and Real Estate

by John Kelly, ATG Law Clerk
Originally published in the May 2003 issue of the ATG concept.

Introduction

Many religious organizations own property for the purposes of meeting and worship. However, since these organizations consist of a membership or congregation, questions may arise about how they hold title to real property. What is the effect on title of an incorporated versus an unincorporated religious society? What if the organization is part of a broader ecclesiastical body? Who holds the title and controls the property? What are the restrictions on the use of the property held by these organizations? This article will pursue the answers to these questions for property located in Illinois, Indiana, and Wisconsin.

Illinois

The title to real estate held by a religious corporation vests in the corporation. The corporation's trustees have the power to use the property for the benefit of the corporation. An organization that files an affidavit of organization under Section 36 of the Religious Corporation Act will select its own trustees. If the corporation instead records an affidavit in the Recorder's Office, pursuant to Section 46b, then the controlling diocese or ecclesiastical body will select the trustees. The trustees of an unincorporated religious society may hold real property for the benefit of the congregation.

Incorporated Societies
Any church, congregation, or society formed for the purpose of religious worship may be incorporated at a meeting appointing two or more of its members as trustees. 805 ILCS 110/35. The church, congregation, or society must record an affidavit of organization in the office of the recorder for the county where the real estate is located. 805 ILCS 110/36. An incorporated religious society may receive land by gift, legacy, or purchase and use the property for religious purposes. 805 ICLS 110/42. Upon the incorporation of any congregation, church, or society, all real property held by the trustees for the use of the members will immediately vest in the corporation and be subject to its control. 805 ILCS 110/41. The corporation, not the members, holds the title to real property.People ex rel Smith v Braucher, 101 NE 944 (Ill 1913). The property may be used, mortgaged, sold and conveyed the same as if it had been conveyed to the corporation by deed. 805 ILCS 110/41. However, a conveyance or mortgage may not be made if it would destroy the intent or effect of any grant, legacy, or donation originally made for the use of the congregation, church or society. 805 ICS 110/41.

The trustees of a religious corporation have the control over the real property of the religious corporation subject to the direction of the congregation, church, or society. ILP Religious Societies &§ 11. In addition, the trustees are the only persons with the power to bind the corporation legally. To do so, the trustees must meet as a board and take action. The separate and individual action of the trustees without holding a meeting of the board is not binding upon the corporation and cannot itself create a corporate liability.First Presbyterian Church of Chicago Heights v McColly, 126 Ill App 333 (Ill 1906).

Incorporated Societies that are Part of a Broader Organization
If a religious corporation is part of a larger diocese or ecclesiastical body, that larger body will appoint trustees to use the property for their benefit. Under Section 46a of the Religious Corporation Act, a congregation, church, or society under the control or supervision of any ecclesiastical body or diocese may become incorporated. 805 ILCS 110/46a. To do so, the congregation, church, or society must file an affidavit in the recording office of the county in which they are organized. 805 ILCS 110/46b. The ecclesiastical body or diocese to which the congregation, church, or society may belong may appoint two or more members of the sect or denomination to be trustees. The trustees may receive land in the name of the corporation by gift, legacy, or purchase. 805 ILCS 110/46f. The property may be used as necessary for the convenience and comfort of the congregation, church, or society but only in the manner expressed in the gift. If no use or trust is expressed, the property should be used for the benefit of the corporation, church, society, sect, or denomination for which it was intended. InClay v Illinois District Council of the Assemblies of God Church, the title to disputed real estate held by a local church organization reverted to the district council of the church as provided in the local organization's bylaws, when the district council concluded that the local organization no longer functioned as an affiliated church. 275 Ill App 3d 971, 657 NE 2d 688, 212 Ill Dec 487 (4th D 1995).

Unincorporated Societies
The trustees of an unincorporated religious society may hold real property for the benefit of the congregation. If a conveyance is made solely for the benefit of a congregation and trustees are named as the grantees, the right of possession, control and use of the property vests solely in the congregation.Crocher v Abel, 180 NE 852 (Ill 1932). A conveyance is made solely for the benefit of a congregation if the conveyance or deed is not in trust for the benefit of the general body of a denomination or for the teaching or practice of any particular religious practice or doctrine.Glader v Schinge, 168 NE 658 (Ill 1929). When a church is independent in its organization and governed solely within itself and owns property with no other specific trust attached to it other than it is for the use of the church, the majority of the membership controls the right to the use of the property.Wright v Smith, 124 NE2d 363 (Ill 1955).

Use of the Property
If property is held in trust for the use of the society or congregation, there is no breach of trust if the wishes of the congregation or society are regarded. ILP Religious Societies &§ 11. InCalkins v Cheney, the rector of an incorporated religious society was deposed from the ministry by the ecclesiastical authority. The court held that since the property was not in trust for the benefit of any particular doctrine, the congregation did not violate the trust by continuing to attend the ministries of the rector in the same house of worship. 92 Ill 463 (Ill 1879). Property that is held by a religious society in trust for specific purposes may not be used for other purposes. ILP Religious Societies 11.

Indiana

An incorporated religious society has the same powers as an individual to acquire, convey and mortgage real property. Certain types of unincorporated societies may acquire land up to a limit of 160 acres. The trustees of an unincorporated society have the power to control and use the property consistent with the purposes of the society and the terms of the conveyance.

Corporations
An incorporated religious society is subject to Indiana's corporations law and has the right to acquire, convey, and mortgage real property. The members of a religious association may incorporate on their own initiative. They may reserve to themselves exclusive control of property or they may organize in subordination to the discipline and rules of any greater body of which they may form an integral part.Kompier v Thegza, 13 NE2d 229 (Ind 1938). If a church or religious group chooses to incorporate under laws of the state of Indiana, then courts have the power to require the corporation to comply with state corporations law.Lozanoski v Sarafin, 485 NE2d 669 (Ind App 3 1985). Unless their articles of incorporation provide otherwise, a not-for-profit corporation has the same powers as an individual to do all things necessary and convenient to carry out the corporation's affairs. IC 23-17-4-2. Their authority includes the power to purchase, receive, take by gift, devise or bequest, lease or otherwise acquire and own, hold, improve, use and otherwise deal with real property wherever located. In addition, a nonprofit corporation may sell, convey, mortgage, pledge, lease, exchange, or otherwise dispose of all or any part of the corporation's property.

Unincorporated Societies
Indiana allows unincorporated societies to acquire land up to 160 acres and to elect trustees to use the land for the benefit of the society consistent with the uses declared in the conveyance. The Indiana Code defines "societies" to include churches, associations, and congregations. IC 23-10-2-2. Unless authorized by statute, an unincorporated society cannot take or hold property in the association's name, either by gift or purchase.Popovich v Yugoslav National Home Society, 18 NE2d 948 (Ind 1939). The Indiana Code, however, authorizes certain types of organizations, including the lodge of Free Masons, Odd Fellows, Knights of Pythias, and any voluntary association for religious, educational, scientific, or benevolent purposes, to take by purchase, grant, or devise lots or tracts of land no larger than 160 acres. IC 23-10-2-1.

The land may be used to erect buildings for religious worship or for other purposes that will best attain the objects of the organization. IC 23-10-2-1. For that purpose, the society may elect between three and nine trustees. The trustees have the power to contract, sue, be contracted with and sued with like effect as other persons or corporations. IC 23-10-2-9. The trustees also have the power to receive conveyances of land, whether by purchase, gift, or otherwise, for the sole and exclusive benefit of the society and for the uses declared in the conveyance or grant. IC 23-10-2-11. A majority of a society's trustees may convey real property to more effectively carry out the objects of their trust. IC 23-10-2-13. A mortgage executed by the trustees of a church is not void for want of power to execute it. Furthermore, in an action to foreclose a mortgage given by the trustees of a religious society to secure an indebtedness, it is no defense that they did not have title.The Board of Trustees of the Methodist Episcopal Church of Kendallville v Schulze, 61 Ind 511 (Ind 1878). InPhillip v Aurora Lodge No. 104 I. O. G. T., 87 Ind 505 (Ind 1882), the trustees of a secret society who had a general power to manage its property had the power to lease the lodge room to another society for one night each week.

Wisconsin

A religious corporation may purchase, sell, mortgage, and lease real property. If the corporation is part of a broader organization, the property may be subject to restrictions as the ecclesiastical authority of the church or religious denomination may provide. Unincorporated religious societies may also hold real property if the property is conveyed to trustees in trust for the benefit of the church or congregation. The Wisconsin statutes also have several sections that pertain to specific religious denominations.

Religious Corporations
The members of any church may organize a corporation for religious purposes. Wis Stat &§ 187.01(1). A religious corporation may appoint no less than three trustees and purchase, hold, mortgage lease and sell real estate as provided by its bylaws. Wis Stat &§ 187.01(3).

Religious Corporations that are Part of a Broader Organization
The corporation may be empowered by the body electing them to hold the title to real property of the church and religious denomination for which it is created and to use and manage and convey the property under such restrictions and limitations prescribed by the property ecclesiastical authority of their church or religious denomination. Wis Stat &§ 187.06. If any society organized under &§ 187.01 through &§ 187.07 dissolves by removal of members so there is no acting organization for six years or by a vote of the members to transfer all of its real estate to a corporation of the same denomination, the title to the real estate vests in the corporation of the same religious denomination next higher in authority. Wis Stat &§ 187.08.

Unincorporated Associations
An unincorporated religious organization may hold title to property in trust for the members of the organization. Section 187.07(1) provides that when land is conveyed in trust for the use of any religious society, title will vest in the trustees of the society as fully as if originally conveyed to them. InMartin v Board of Directors of German Reformed Church of Peace of Washington County, 134 NW 1125 (Wis 1912), the court held that even though a church society was not incorporated when it was granted land for a church building and cemetery, the intended trust would not be impaired if the title was granted to the trustees or members of the society. Furthermore, title to property acquired by an unincorporated church vested in its trustees in trust for the uses and purposes for which it was conveyed.

Control over Property
InKerler v Evangelical Emmanuel's Church of Hales Corners, 282 NW 32 (Wis 1938), a religious corporation used funds donated by its members to construct a church dedicated to the "worship of God according to the Evangelical Faith." The pastor of the church was dismissed from membership in the Evangelical Synod and ceased affiliation with any denominational group. The religious services he thereafter conducted in the church were not in accordance with the Evangelical Faith. The court held that those who have title or control of property acquired for the maintenance of the faith of a recognized denomination, whether a corporation or the officers of the religious association, are charged with a trust to apply it to the uses for which it is acquired. Furthermore, every member of the acquiring association, whether or not it is incorporated, has a right to resist a property's diversion to other antagonistic uses. Therefore, the corporation was required to use the property according to the evangelical faith and was not permitted to use the property for the pastor's nondenominational services.

InAnderson v Byers, 269 Wis 93, 69 NW2d 227 (Wis 1955), a minority of a church's membership, opposed to the church's change in affiliation within the Baptist faith, withdrew from the church and commenced an action to enjoin the church from occupying the premises. The only trust implied in the deed was for the church to continue in the Baptist faith. The court held that where a religious organization is independent and self-governing, the numerical majority of members control the right to use the property. Therefore, since the minority chose to separate themselves, they cannot claim a right in the property based on the fact they had once been members of the church. Also, the court would not find a trust for the purpose of prohibiting from use of the church those who may have changed their views in some respect.

InCape v Plymouth Congregational Church, 117 Wis 150, 93 NW 449 (Wis 1903), a majority of the members of a church society withdrew and organized themselves into a church of an entirely different denomination and excluded the remaining minority of members from the church property. The court held that the fact that a majority of a religious society withdraws from a church and organizes a new church of a different denomination does not entitle them to share in the benefits of the fund or property held in trust for the original society. Therefore, the remaining minority had the right to use and occupy the church building during the times originally mentioned in the deed to the exclusion of the majority that withdrew.

Specific Denominations
The Wisconsin statutes also have several sections covering specific religious denominations. In the case of the Episcopal Church, an incorporated church may take real property by purchase, devise, or gift intended to be used for burial purposes or cemetery grounds. Wis Stat &§ 187.04. An incorporated church of the Congregational Church denomination may receive real property only for the purposes for which it was incorporated and may sell, mortgage or lease the property as provided in its rules and bylaws. Wis Stat &§ 187.10.

Lands conveyed to a Congregational Church corporation vest in the corporation when incorporated and will vest in the Wisconsin Congregational Association if the corporation becomes defunct. Wis Stat &§ 187.10. If a church is organized under the denomination of either the Church of Christ or the Christian Church and becomes defunct, the property will vest in the Wisconsin Christian Ministry Association if that was adopted as the church's ministry association and the state institution of the denomination. However, if the church reincorporates within three years of becoming defunct, the property will vest in the new corporation. Wis Stat &§ 187.11.

In the Methodist church, the church's trustees have the power to acquire, use, sell, and mortgage property for the benefit of the church. Wis Stat &§ 187.15(1). When an individual Methodist church becomes defunct, the property vests in the annual conference and is administered according to the rules and discipline of the church. Wis Stat &§ 187.15(4). InThe Wisconsin Conference Board of Trustees of the United Methodist Church, Inc v Culver, the Elo Methodist Church withdrew its affiliation with the United Methodist Church. The Wisconsin Supreme Court held that the Elo church was "defunct" or "dissolved" within the meaning of Section 187.15, which divests a defunct or dissolved local Methodist church of property, even though the church existed as a practicing congregation. Therefore, the title to the property vested with the United Methodist Church. 243 Wis 2d 394, 627 NW 2d 469 (Wis 2001).

In the Eastern Orthodox Church, trustees of an incorporated body have the power to control and administer property belonging to the corporation in accordance with the bylaws of the corporation and the rules and regulations of the governing body to which the church is subject. Wis Stat &§ 187.17(4)(c).

Finally, in the Roman Catholic Church, a corporation may acquire and sell real property subject to its bylaws. Wis Stat &§ 187.19(2). However, the real estate of the corporation may not be sold, mortgaged, or encumbered without the vote and consent of all directors. Wis Stat &§ 187.19(5). When a corporation within the Roman Catholic Church becomes defunct, the property vests in the bishop of the diocese in which the corporation is located. If the corporation is reincorporated within three years, the property of the defunct corporation will vest in the new corporation. Wis Stat &§ 187.19(11).

Conclusion

Religious societies have very similar rights to acquire, hold, sell, mortgage, and lease real property in Illinois, Indiana, and Wisconsin. In general, incorporated religious societies may acquire, sell, mortgage, and lease real property. The property must be used for the benefit of the congregation as long as the use does not violate any trust upon which the property was received. In Illinois and Wisconsin, trustees may hold property in trust for the benefit of an unincorporated religious organization. In Indiana, only certain unincorporated religious societies may hold real property and they are limited to 160 acres. Finally, all three states require the property to be used for the benefit of the organization and for the uses that were specified in the conveyance.

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Posted on: Sat, 05/17/2003 - 9:28am

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