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Nonprofit Law/501c3 nonprofit buying a home


QUESTION: I am following up on my question here -

I called by bank and they say that a LLC cannot buy a residential home but can only buy a commercial space. Our 501c3 charity is a registered LLC in state of FL and also is a 501c3 nonprofit. Do you know if the bank is accurate in saying a 501c3 can not purchase a residential home?


ANSWER: I have in my profile that this free forum is only for general questions about IRS federal exemption issues of 501(c)(3) organizations. There is no federal law that an LLC may not purchase a residential home. I suggest that you ask the bank for the citation to the law that they are referring to. It is not that there is any law stating that such an act may be done.  Here in the United States, unless something is specifically prohibited by law, then it is allowed.

By the way, it appears that your LLC is NOT a 501(c)(3) organization.    The IRS grants 501(c)(3) organization exemption status to LLCs that are properly organized and operated.  However, it only would
grant exemption to an LLC whose members are all themselves exempt organizations.

"Because state laws generally provide LLC members with ownership
rights in the assets of the LLC, the Service is concerned that
allowing non-exempt members would result in potential inurement
problems.  Thus, the LLC cannot have private shareholders
or individuals as members, and its organizing documents must
state a purpose to further the members' charitable purposes.  It
should be noted, however, that the presence of solely charitable
members does not ensure that the organization will be operated
exclusively for charitable purposes. "
at pdf page 4 about 1/2 of the way down the page

Harvey Mechanic
Attorney at Law

P.S. This response is intended to be a general statement of law, should not be relied upon as legal advice and does not create an attorney/client relationship.

---------- FOLLOW-UP ----------

QUESTION: Thank you for the reply.
We are a registered 501c3 organization. I am sorry we are not a LLC, we are a INC. We do have the 501c3  approval letter from IRS.

So, legally they should let our nonprofit buy a house and they should be able to mortgage it? Do you know of any special clauses during the mortgage process? Do we have to have a independent board before we can go with the mortgage process?
Currently we sit on the board but we are forming it but not completely yet

The bank will require a corporation resolution of the board before it gives funds to the organization but it will not be checking whether the board is "independent". Please get a real estate broker to represent your organization as an agent for the purchase of real property and that broker will be able to assist you in the process by answering general questions as to mortgages (or ask the bank directly).

Harvey Mechanic
Attorney at Law

P.S. This response is intended to be a general statement of law, should not be relied upon as legal advice and does not create an attorney/client relationship.

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Harvey Mechanic


DO NOT GIVE ME INFORMATION THAT YOU WANT KEPT CONFIDENTIAL. I am an attorney and I volunteer time to answer general questions about U.S. Federal income tax issues of nonprofit 501(c)(3) public charities only. Those questions could be about establishing and maintaining legal requirements for such non-profit organizations in the United States, including Internal Revenue service filings and requirements. I will not be working on this free forum to answer questions about Nonprofit's possible unrelated or for-profit businesses or how to fill out forms. This forum is only for general questions about federal tax law, not as the law applies to your specific situation. If you do not make your question public then I will not be spending much of my donated time on answers that would not benefit the public. If you have other questions, please contact me at I will reply from my email. In any case, do not reveal confidential information to me until after I have contracted with you to provide personal legal services. My responses on this forum are intended to be general statements of law, should not be relied upon as legal advice, and do not create an attorney/client relationship. For me to consider your individual situation and how the law applies, I would need to gather extensive information about the situation. To search my previous answers you can do a Google search by "" without the quotes and then add your search terms before hitting enter.


I have been practicing law and especially the law of nonprofit organizations since 1990 when I was admitted to the New York Bar and I have maintained my status with the Bar since that time.


B.S. Columbia University in New York City, 1970

J.D. (Law Degree) Brooklyn Law School, 1990 -- Cum Laude.

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