Administering Church Property Purchases
Wed, 14 Apr 2010 - 3:48 PM CST
By John P. Joseph
Buying property for church expansion may not be in the immediate plans of your church. But if and when the opportunity comes, will you know what to do? This article addresses, from a church administrator’s viewpoint, how to go about the process—from investigating property through closing.
First, create a file entitled "property acquisition"; otherwise, you run the risk of losing key notes and bits of information which may be necessary or beneficial in the future. Ask the county property appraiser’s office (called "assessor’s office" in some areas) to send you a copy of your plat showing the subdivision of your church. This will allow you to see your church in relation to other possible vacant land for expansion. Sometimes aerial photographs are available from the county at a nominal cost.
Next, determine who the surrounding property owners are. This, too, is available from the property appraiser’s office for the legal description and owners’ names of record. Realtors can help with local sale prices in the area to establish a fair market value. After these initial inquiries you may decide to make an offer on an adjacent parcel. If so, you will need board approval and authorization.
Get church board approval and document it. Most churches are not-for-profit corporations whose decisions require the board of directors’ or deacons’ approval. Not only should a motion be passed, but the secretary should draft a "corporate resolution authorizing the purchase of property."
Certain elements should make up this document:
1. Name the person authorized to make the offer and sign the "contract for purchase."
2. Include financial terms for the purchase.
3. State the legal description of the property and street address.
4. Certify the resolution was duly adopted by the board.
5. After verifying, state the purchase does not conflict with any governing documents of the church.
6. Have each board member, president, and secretary sign the document.
Besides having this document in your minutes in case a question is raised at the annual business meeting, the closing agent, seller, or lending institution may require it; therefore, have it prepared and executed. With this and the money in hand, you are now ready to make an offer to purchase.
Offer to Purchase
Contact the owner directly. If the property is already listed by a real estate agency, consider retaining your own buyer’s broker, which would allow him/her to represent the church in the negotiations and assist your attorney. Usually the listing agent will split the commission with the buyer’s broker so there is no charge to the church.
A valid offer presented with a money deposit or consideration becomes a valid enforceable contract upon the seller’s acceptance. Only make an offer when you are ready to close.
Regarding elements in the offer, it is advisable to ask the seller to "hold paper" or keep a mortgage on the property. Include a fixed rate the church is willing to pay on the loan. A 15-year loan is good for maximum principal reduction. Having the seller agree to holding a mortgage often works well for both parties, since the church’s expenses are usually less than a bank loan, and the seller gets a higher rate than a money market’s fund may offer.
If your offer is considered low by the seller, be innovative. For example, last year I represented a seller who rejected a church’s offer on her property. I asked the church to provide my client with a donation certificate for the difference an appraisal would reveal. My client paid for the appraisal, which was only a few hundred dollars. The offer was $190,000, but the appraisal was $230,000. My client, the seller, received credit from the church for a $40,000 donation, and we closed the deal. The result pleased everyone. The church bought the property needed for a school at their price of $190,000, and my client was happy.
Before making your offer, hire legal counsel. Your attorney will be interested in several issues such as whether your offer should be contingent on zoning. Verify the property can be used for the purpose you intend. If it is an adjacent or bordering parcel, your local authorities may look favorably on rezoning, but this is no guarantee. Many churches are facing more and more hostile local governing agencies because of environmental concerns and impact on the community. You may state that closing is contingent on rezoning to protect the church.
Suggested language may be helpful:
"This contract is contingent upon the buyer’s receiving all governmental and zoning approvals, waiting periods, and receipt of all permits for use of the property to build a church, school, and family-life center. Sellers will cooperate with this process and provide whatever material or signatures required."
Contingent offers have risks. The seller may be reluctant to accept your offer because by accepting, the property will be off the market until the contingencies are satisfied. Also, other offers may not contain contingencies resulting in your offer’s not being seriously considered. Also, the seller will have to continue paying property taxes while the church’s process churns through the system. Agree to reimburse the seller at closing for these expenses.
It is necessary to include with your offer not only a deposit but a deadline for your offer to be accepted. Set your closing date on a weekday when it is slow in your office, and you will not have any problems attending the closing.
ESSENTIALS TO PROTECT ALL PARTIES
1. Hire an attorney. This is important especially at the earliest part of the process. Your own legal counsel will advise you according to the local requirements. This article addresses only general matters.
2. Order a survey. What is a survey? Technically it is a document that determines the boundaries of the land you are looking to purchase. It will show what you are buying. Since your offer stated you desired a survey, contact your agent or attorney to order one. The usual cost is a few hundred dollars, but it is extremely valuable for several reasons. The survey will reveal any encroachments or easements on the property. Encroachments are movements on the property by someone or something which interferes with your property right. In other words, a trespass upon the land. Exactly how much any encroachment will interfere with your use will be the focus of your attention.
An easement is a little more technical. It is a burden on the land which does not yield any benefit to you. It may be an electrical line or right-of-way, so the survey is simply a tool to inform you what property is available for your use. After you have reviewed the document, it is helpful to speak with the surveyor to go over it with you.
Always walk the property before closing. You will notice the surveyor’s pink flags or stakes designating the boundaries of the subject property. This will not only give you a feel for the size of the parcel and the landscape but also any noticeable deficiencies to raise with the seller before closing.
3. Purchase title insurance or attorney title. Most contracts for purchase of real property require that an updated abstract (a chronologically arranged compilation of all recorded documents affecting title to a property) or attorney/title insurance be provided. Attorney title/title insurance is a contract whereby the insurer (insurance company) for a fee agrees to indemnify the insured (church) in a specified amount against loss through defect of title to real estate. State in your contract for purchase that the seller will pay for the insurance.
Also verify the title insurance is being issued under the church’s correct legal name (e.g., Upper Room Assembly, Inc.). Make sure the property description is complete with the coverage equaling at least the gross purchase price.
FINAL PREPARATION TO CLOSE ON THE PROPERTY
Before closing, the closing agent needs to send you the closing package, which contains the papers you will have to sign at closing. Three of the most important documents to receive are the note/mortgage, deed, and settlement statement. A review of each and its importance follows:
1. Promissory note/mortgage. The note is simply a written promise to pay another a certain sum of money at a certain time. Basically it evidences your indebtedness. In some states it is a combined document. Usually there is a note and mortgage. Our focus will be the note.
Make sure there are no personal guarantees. Remove any "guarantor" provisions in the note and sign in your corporate capacity (e.g., John P. Joseph, president). This evidences your signature as a corporate agent and not individually. Additionally make sure the note states, "This note shall be prepayable in whole or in part at any time without premium or penalty." This will allow you to pay off the seller (mortgagee) earlier by making additional principal payments.
A software program such as Mortgage Minder may help you in this regard. Mortgage Minder allows you to calculate how soon your mortgage would be paid off if the church made an additional monthly payment toward principal. Conversely, it can also advise how much of a prepayment would be necessary to pay off your mortgage by a certain date. Finally, do not sign multiple notes. There is no reason to run the risk of owing more than the purchase price.
2. Warranty deed. This conveys the property to the church. In each transaction involving the sale of real property a deed must be prepared. It should be a warranty deed and not a "quit claim deed," which only transfers the seller or grantor’s present interest as distinguished from a warranty of title. Warrant deed provides the church with a warranty of title providing a bundle of rights unavailable through a quit claim deed.
The deed itself will have to be looked at very closely. First, make sure the marital status of the seller(s) or grantor(s) is stated. If the seller is married, ask that the spouse also sign the deed. If the seller or grantor is divorced, verify such by asking the closing agent to record the "final judgment" papers showing the property was conveyed to the seller.
Second, the legal description on the deed must be identical to the deed he/she received, on the plat you received earlier, and as set forth in the title insurance commitment or attorney title.
Third, the deed will state "exceptions"—items excluded in the transfer of a free title. Generally the only exceptions in the deed should be the following:
•Taxes for the current year.
•Easements, restrictions, and covenants of record.
•Declaration of condominium (where appropriate).
•Existing mortgage if being assumed or title being taken subject to the mortgage.
Fourth, the deed must be signed using the full and complete names of all the grantors as set forth in the title insurance commitment or attorney title. They must be executed with witnesses and notary as required in your state.
3. Settlement statement. This document itemizes the seller’s and buyer’s expenses and discloses the settlement charges for such items as prorated taxes, title search, recording fees, city/county tax/stamps, state tax/stamps, survey, etc. Review carefully each item and make sure the closing agent is not overcharging the church for items the seller is supposed to pay according to the contract. Subject to your attorney’s review and counsel, you’re ready to close.
CLOSING THE DEAL
The closing is the name given wherein the parties sign all the necessary papers to complete the transaction. It usually takes place at an attorney’s or title insurance/closing agent’s office. However, the church still needs to address a few loose ends:
1. Find out from the closing agent how much you need to bring to closing. You would have an idea from the settlement statement. Ask if a cashier’s check is required. Do not assume a church check is O.K.
2. Ask if you will need to bring a copy of your Articles of Incorporation and the corporate seal.
3. Verify the necessary parties required at the closing. The president should be present, but in your state the secretary may also be required.
4. Ask the closing agent to mail you the closing package, which will contain copies of the executed documents.
Relax, you have done your homework, and your attorney was there from the beginning. Let it be an enjoyable experience. Who knows? This property may not be developed for years, but the leadership ahead of you will be thankful for your foresight as they endeavor to reap the same harvest.
Pray and ask the Lord what vision He has for your church. He might impress upon you a certain parcel of property to begin praying about. He did with us at Upper Room. The leadership felt impressed to contact the owner of an adjacent parcel, but the Lord told us to wait a week and pray before we were to make contact. We did just that, and within days the owner desired to sell the property and contacted us. At closing she revealed that the week we prayed she remembered a promise 10 years ago to offer us first chance to buy. Our Lord is the Lord of the present and the future. Ask Him now what His desire is for expanding your vision and His kingdom.
John P. Joseph, Esq., is the business administrator for Upper Room Assembly of God, Miami, Florida.