by Lisa K. Tully*
The 2005 General Assembly made numerous changes to the statutes governing ownership and transfer of church property. These amendments require a change in underwriting requirements made by title insurance companies insuring a transfer of church land.
I. BACKGROUND
In order to understand the significance of the new statutes, an historical perspective is necessary. Section 14(20) of Article IV of the Constitution of Virginia reads in part "The General Assembly shall not grant a charter of incorporation to any church or religious denomination." This constitutional provision traces its roots to Thomas Jefferson's Virginia Statute for Religious Freedom and was likely enacted to prevent the establishment of a state religion.
Because of this prohibition on incorporation, prior to 2002 all religious bodies in Virginia were classified as unincorporated associations. An unincorporated association is not an entity capable of holding title to real estate in Virginia. Such an organization must appoint, or have a court appoint, trustees for the purpose of holding title to its land.
In 2002 Jerry Falwell filed suit against the Virginia State Corporation Commission ("SCC") in federal district court over its refusal to incorporate Thomas Road Baptist Church in Lynchburg, Virginia. In its decision in Falwell v. Miller, 203 F. Supp. 2d 624 (W.D. Va. 2002), the court found that the SCC's refusal to incorporate Falwell's church violated the First Amendment to the United States Constitution. The Court stated "unlike other groups in Virginia, members of 'a church or religious denomination' are unable to incorporate the organization to which they belong. They are therefore denied the benefits of incorporation because of their religious status."
Immediately after this decision was announced the SCC issued a corporate charter to Thomas Road Baptist Church and began issuing charters to other religious organizations submitting proper articles of incorporation. The SCC's authority to issue such charters was based solely on the federal district court's decision until 2005 when the General Assembly added § 57-16.1 to the CODE OF VIRGINIA. This new section states that whenever the polity of a church allows it to create a corporation to hold and manage its property, the corporation shall have the power to acquire and hold that property in accordance with church polity and Virginia law.
II. UNINCORPORATED CHURCHES
Unincorporated churches
continue to hold title to property subject to the many restrictions outlined
in the Virginia statutes. State law divides all religious bodies into two classes
for the purpose of holding title to real estate.
Ecclesiastical Officers. If the laws of a religious organization commit
to an elected bishop, minister, or other officer the authority to administer
the organization's affairs, then such officer has the power to acquire, sell,
and mortgage title to real estate. In the event that such named officer transfers,
is removed, resigns, or dies, title to the real estate passes to his successor
without the need for a deed of conveyance. See VA. CODE § 57-16. Generally,
Roman Catholic and Church of Jesus Christ of Latter Day Saints congregations
hold title through an ecclesiastical officer.
All Other Denominations. Title to real estate of all other unincorporated religious organizations is held in the name of trustees. Such trustees are appointed by the congregation or by the circuit court as specified by church law. The title to real estate passes to successor trustees without the need for a deed of conveyance. See VA. CODE § 57-8. If such a church has not formed a corporation and transferred its real estate to that corporation, and if church law authorizes such a conveyance, the trustees may sell or encumber church real estate after obtaining a court order allowing them to do so.
III. INCORPORATED CHURCHES
Because Virginia law now allows church incorporation, it was necessary for the General Assembly to consider how an incorporated church may transfer or encumber its property. VIRGINIA CODE § 57-15, which governs the transfer of real estate by church trustees, was amended in 2005. It provides that, if a church has incorporated, or if it has formed a corporation to hold its property, the church trustees may transfer real estate held by the trustees to either type of corporation without first obtaining court permission so long as the transfer is authorized by the church's governing polity. If no petition to set aside the transfer is filed within one year after recordation of the trustees' deed, then the transfer is presumed to have been made in accordance with the church's governing polity as to a good faith purchaser or lender.
Real estate obtained and held directly by a church corporation may be conveyed without a court order. Normal corporate underwriting requirements must be met.
IV. UNDERWRITING REQUIREMENTS
A. Title Held by Ecclesiastical Officer
The title insurance commitment will show title to be vested in, and require a deed from, the current ecclesiastical officer. For example, land originally deeded to Walter F. Sullivan, Bishop of Richmond, is now vested in Francis X. DiLorenzo, Bishop of Richmond. The commitment will require a deed from Francis X. DiLorenzo, Bishop of Richmond.
No other requirements or exceptions are necessary.
B. Title Held by Church Trustees
1. The title insurance commitment will show title to be vested in the trustees, as "John Jones and Bob Smith, Trustees of the First Methodist Church." If the names of the current trustees are known, title will be shown to be vested in those trustees even though the land may originally have been deeded to other named trustees.
2. The commitment will require a deed from the church trustees:
Deed from legally constituted church trustee(s), acting pursuant to and in accordance with approval of congregation, discipline of church and decree of court of competent jurisdiction approving sale and authorizing deed vesting fee simple title in (name of purchaser).
Note: The Company will require that it receive and satisfactorily review a copy of the petition and court order authorizing the above conveyance, alternatively the Company will require certification by the approved attorney that such conveyance is in compliance with discipline of the church and Virginia statutes.
3. The commitment will require Deed of Trust from the church trustees:
Deed of trust from legally constituted church trustee(s), acting pursuant to and in accordance with approval of congregation, discipline of church and decree of court of competent jurisdiction approving loan and authorizing deed of trust securing your loan.
Note: The Company will require that it receive and satisfactorily review a copy of the petition and court order authorizing the above conveyance, alternatively the Company will require certification by the approved attorney that such conveyance is in compliance with discipline of the church and Virginia statutes.
C. Title Held by an Incorporated Church
1. The title insurance commitment will show title vested in the corporation.
2. The commitment will include a "corporate" requirement:
Receipt by the Company of satisfactory evidence that:
(i) Seller/borrower is a valid and subsisting corporation in its state of incorporation;
(ii) Execution and delivery of the document(s) required above is/are pursuant to church polity and in accordance with church doctrine;
(iii) The corporate officer executing required document(s) has been duly authorized by proper resolution of the denomination or congregation of seller/borrower.
3. If the real estate was conveyed to the corporation by the church trustees within one year prior to the insured conveyance to a good faith purchaser or lender, the commitment will include the following requirement:
The Company will require that it receive satisfactory evidence that the conveyance by church trustees was pursuant to church polity and in accordance with church doctrine.
In the event that the above requirement cannot be met, or if the insured conveyance is not to a good faith purchaser or lender, the following exception will appear on the policy:
This policy does not insure against any loss or damage caused by the filing of a petition pursuant to VIRGINIA CODE § 57-15 (B) to set aside the transfer of title from [name of church] to [name of church corporation] dated [date of deed] recorded in the Clerk's Office, Circuit Court [location] in Deed Book [], page [].
V. ACREAGE RESTRICTIONS ON CHURCH LAND
A second suit filed by Jerry Falwell challenged VA. CODE § 57-12, which limited the quantity of land held by church trustees. Falwell v. City of Lynchburg , 198 F. Supp. 2d 765 (W.D. Va. 2002), was dismissed under various legal theories. However, VIRGINIA CODE § 57-12 was repealed by the General Assembly in 2003, thereby eliminating the restriction on quantity of acreage owned by church trustees.
There remains a limitation on conveyance of land for use as a cemetery by a church or any other entity. There may be no conveyance of more than 300 acres of land or condemnation of more than 2 acres of land for use as a cemetery. See VA. CODE § 57-26 (2).
*Lisa Tully is Vice President - Underwriting Counsel for Lawyers Title Insurance Corporation, Commonwealth Land Title Insurance Company and LandAmerica Exchange Company, subsidiaries of LandAmerica Financial Group, Inc. She received a Bachelor of Arts from the University of Richmond in 1982 and a Juris Doctor from its law school in 1985.