Yes.  In commenting on many of the practical problems of accepting real estate gifts, I neglected to cover this very important issue.  Ordinarily, a charity can accept a gift and sell it at a profit without having to pay federal income tax.  But you have identified a critical distinction in this situation.  Thanks for pointing it out.

Income from property not used for the charity’s exempt purpose and acquired with “acquisition indebtedness” is considered income from “debt-financed property” and is subject to unrelated business income tax (“UBIT”).  A property owned outright by a charity may be rented to unrelated businesses and the income is not taxable.  But a property acquired with acquisition indebtedness generates unrelated business taxable income from the same rental income.  In the case of the current question, even if there will be no mortgage to secure the charity’s obligation to repay the director, the loan would be acquisition indebtedness because it would be entered into in order to acquire the property. Income from both the operation and disposition of the property would therefore generate unrelated business taxable income.

The portion of income that would be subject to tax is essentially the amount which is the same percentage of the income as the percentage that the outstanding acquisition indebtedness is of the cost basis of the property.  In this case, if the acquisition indebtedness is $100,000 and the purchase price cost basis is also $100,000, 100% of the gain on the sale would be subject to tax. If the house ultimately sold for a net of $800,000, the whole $700,000 gain would be subject to tax. (If the director loaned only $50,000 toward the purchase price, only half of the gain would be subject to tax.)

Whatever the charity recovers is sort of “free money,” but it would clearly be better economically (and probably more attractive to the donors) if it could generate the purchase price from some source other than loaned funds.