Generally, the local church in a hierarchical denomination owns its own property but holds it in trust for the denomination. This is often also true in denominations that are not hierarchical but in their governing documents require the local church to own its property but hold it in trust for the denomination. The rationale for such trust provisions is that generations of members of the local church, that also thought they were members of the denomination, gave offerings based on that premise. The attempt by a future generation of local church members or leaders to divorce from the denomination does not, so the rationale goes, keep faith with the generations that came before.
In Presbyterian Church of the Palisades v Hwang, Slip Op. (NJ App. 2021), the local church lost membership and financial stability to the point it was about to lose its property to foreclosure. The local church managed to salvage the situation by selling the property to a third-party non-church entity. The funds paid by the third-party non-church entity were placed in escrow. The litigation proceeded over who was entitled to the purchase funds placed in escrow. The local church corporation claimed to be the owner but so did the denomination. The mortgage default by the local church triggered the trust clause in the denominational governing document. As a result, the local church was no longer owner of the property. The denomination assumed the role as owner under the trust provision. The “owner” would be entitled to the escrowed purchase funds. The trial court determined under the trust provision the denomination was the “owner.” The appellate court affirmed the trial court and ordered the escrowed funds released to the denomination.
If the denomination is hierarchical, most courts will under the “deference doctrine” defer to the decisions of the denomination regarding disposition of local church property. The denominational governing documents generally compel the result. If the denomination is not hierarchical, the “neutral principles of law doctrine” will generally compel the enforcement of the denominational governing documents. If the denominational governing documents require that the local church owns its property in trust for the denomination, Neutral Principles of Law will generally dictate that the denomination is the owner. There are few exceptions, the most recognized being when the deed filed of record expressly excluded the ownership of the denomination and the denomination approved the deed.
Church Litigation Update 