Article Archives >> Lead Stories >> January 16-31, 2009

Church Loses Over $291,000
Pursuing Anonymous Gift
Member took funds borrowed to purchase
a $1 million bargain-sale property

When a member of a church in Nebraska approached the pastor about a bargain-sale gift of real estate from an anonymous donor in August 2004, he set in motion a four-and-a-half year series of events that has resulted in no gift to the church and only a judgment to recover more than $291,000 paid to the member, who spent much of the money on his personal expenses.  An appellate court in Nebraska has affirmed a summary judgment for fraudulent misrepresentation and conversion against the member.  (Zion Lutheran Church of Benson Station, v. Mehner, Ct. of App., NE, No. A-08-200, 1/6/09.)

Mark Mehner told the pastor that an anonymous member of the congregation wanted to donate an undisclosed parcel of land for $250,000 so that the church could then sell it for its full value, which was over $1 million.  In order to assure the anonymity, the donor had established a separate trust to conduct the sale of the property.

The church borrowed $250,000, which it gave to Mehner, who gave it to the trust for the property.  He subsequently asked the church to provide an additional $30,000 to pay expenses associated with selling the property to a new purchaser. 

The church never received the proceeds of the sale or a refund of its $250,000 payment.  Mehner refused to identify the anonymous donor or to account for the use of the funds.  The church sued in 2006.

In discovery, it was ascertained that the trust was set up at the request of Mehner, who had a friend act as trustee.  The friend did not have any financial experience nor any knowledge of her specific duties.  She advanced funds from the trust to Mehner when he requested it.  He spent the money for various personal bills, including his son’s college tuition, expensive jewelry, clothing and dining out.

Mehner did not offer any evidence at the summary judgment hearing, refused to reveal the identity of the anonymous donor or any documentation regarding the sale, including the location of the land.  He said he was bound to confidentiality but did not produce a confidentiality agreement.  The trial court granted a summary judgment for $291,515.74, plus attorney’s fees.

In affirming the judgment for fraudulent misrepresentation, the Court of Appeals wrote: Mehner “refused to explain why the sale of the property did not go through, to provide the name of the donor, or to provide any information to substantiate his claims that there ever existed any piece of land or potential sale of that land.  In fact, during his deposition, Mehner claimed to not ‘recall’ any information about the donation to the church, about the location of the church’s money, or about the ‘expenses’ he incurred in effectuating the sale of the property.”  Nor did he present evidence of the alleged confidentiality agreement.

"In light of the evidence presented by [the church], and in light of Mehner’s failure to present any evidence to rebut [the church’s] claims, we find that there is no genuine issue as to any material fact in [the church’s] claim of fraudulent misrepresentation."

On the claim for conversion of property, the Court found that Mehner did not explain how the payment of personal expenses benefited the church or how they related to the sale of the land for the benefit of the church.

YOU NEED TO KNOW

Does the term gift acceptance policy come to mind in reading about this case?

Especially with “gifts” of real estate, or anonymous gifts of anything, a charity ought to have procedures for reviewing proposed out of the ordinary gifts before accepting them.  With real estate, they ought to be reviewed as if the organization were going to purchase them, to assure no environmental liabilities, true marketability, and good title in the donor, among other things.  Once an organization owns gift real estate, it may be very expensive to maintain and very hard to get rid of.

Gift acceptance policies are required under the Standards for Excellence program developed by Maryland Nonprofits and being replicated in many states.  It may seem like a pain to develop all of the policies required for that kind of program, but they go a long way toward preventing situations such as this.

share



Article Archives >> Lead Stories >> January 16-31, 2009




None of the information on the Nonprofit Issues Website should be deemed legal advice or
should be acted upon without prior consultation with appropriate professional advisors.
Materials prepared by Nonprofit Issues contained in these pages is copyrighted by Nonprofit Issues, Inc., 2009-2012.

Home | Article Archives | Ready Reference | Ask the Editor | Bookstore | About Us

Change Profile/Password
Subscribe or Renew

Free E-notice

Nonprofit Issues, Inc.
P.O. Box 482
Dresher, PA 19025
(215) 542-7547 FAX (215) 542-7548
1-888-NP-Issue

E-mail Us