A recent New York Supreme Court decision relates to the intersection of two major practice areas of our firm, foreclosure and Religious Corporation law. The case involved a mortgage loan taken out by Grace Christian Church, located in Brooklyn, New York. According to the Court, the Church mortgaged its property to the plaintiff, John T. Walsh Enterprises, LLC, in exchange for a loan of $350,000.00. When it failed to make payments under the terms of the note, the plaintiff brought a foreclosure action against the Church property.
This case is an excellent example of the interaction between these two areas of law. The reason for this is that, under New York’s Religious Corporation Law, a religious corporation cannot sell, mortgage, or lease its property for a term exceeding five years without the consent of the New York Attorney General. Prior blog posts have discussed the legal procedures necessary for a religious institution to obtain such consent. Recent changes in the law have made it possible to obtain such permission directly from the office of the Attorney General, without the necessity of a Court proceeding. However, if the Attorney General’s Office does not give initial consent, the religious institution then has the option of bringing an action in Supreme Court to obtain such consent. Such action must be served upon the Attorney General’s Office, and, if the Court subsequently approves the transaction, whether it be a sale, lease, or mortgage, then the religious institution may proceed with its real estate transaction.
In the Grace Christian Church case, although the Church’s Board of Directors approved the loan transaction, they did not seek approval of the New York Attorney General, as the law requires. In addition, the loan terms were significantly altered at the loan closing, without the consent of the Church’s Board of Directors. A title search performed by an experienced title company would have shown that the property was owned by a religious corporation, and would have required such consent by both the Board of Directors as well as the Attorney General as a condition of closing the loan.