How Can a Not for Profit Organization Buy Real Estate?

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A not-for-profit organization possesses the legal ability to purchase and take title to real estate. There are specific procedures that a not-for-profit organization must follow in order to lawfully purchase real estate. The failure to follow these procedures potentially can result in the failure of a real estate transaction and transfer of ownership to the not-for-profit organization.

Contract for Sale

Before a contract for sale of real estate is entered into by a not-for-profit organization, the board of directors needs to approve the proposal. The board of directors is vested with a legal obligation to review the proposed contract for sale. Following a review, the not-for-profit's board of directors passes a resolution authorizing the appropriate officer to enter into the contract for sale on behalf of the organization.

The designated officer (typically the president or CEO) signs the actual contract for sale with her signature but with an added notation that the execution is done on behalf of the not-for-profit organization.

Financing

As a legal entity, the not-for-profit organization is able to borrow money. The organization may obtain a mortgage loan. The articles of incorporation of virtually all not-for-profit organizations specifically set forth that the board of directors must approve any loan. Therefore, in advance of submitting an application for mortgage financing, the board of directors must pass a resolution approving taking on such debt. Typically the resolution will cap the maximum amount that is borrowed for a particular real estate transaction.

Closing

The board of directors plays an affirmative role in the closing of the real estate purchase. Following the title search, inspections and other steps taken leading up to the closing, the board of directors determines that everything is in order and passes another resolution. The resolution directs the designated officer to close on the sale.

The designated officer of the organization attends the closing and executes all documents necessary to complete the sales transaction.

Other Considerations

Legislatures change laws frequently, so that last month's requirements for a non-profit to buy property may have been superceded. In addition, laws vary from state to state. Thus, it's prudent to familiarize yourself with the law in your jurisdiction and engage the services of a professional prior to signing any documents relative to your non-profit acquiring any real estate.

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