NHS Highland will put Glencoe House up for sale after locals attempting to buy the mansion under the Land Reform Act could not come up with the 450,000 price tag.
The plan to buy the house and convert it into a visitor attraction had proved a controversial issue in the remote Argyll community, pitting those in favour of the bid against others who argued that it was too expensive.
The four-storey listed Victorian property was built by Lord Strathcona, one of the founding fathers of modern Canada, as a family home for his wife Isabella, who he met while forging a career as a diplomat and politician in the New World.
The 1896 house comes with stables, two lochans and ten acres of ground, which includes an overgrown garden planted with North American trees and flowers in an attempt to make Lady Strathcona feel at home.
During the war, the house was converted into a hospital and following the creation of the NHS it was used as a maternity hospital, cottage hospital and latterly as an old people's home.
In March last year the remaining patients were transferred and closure led to the formation of the South Lochaber Community Group, which launched ambitious plans to turn the building into a craft centre, cafe and wedding venue.
Under the terms of the Land Reform Act, the group was given exclusive rights to bid on the property for six months, later extended to a year. Once it became clear the group was unable to raise the funding, the health board took the decision to place the building on the open market.
NHS Highland chief executive Dr Roger Gibbins said: "They will still be able to bid; the only change is they may face competition. We appreciate that the economic climate is unfavourable but we live in that climate too and we cannot justify holding on to this building any longer. The sale of this building will bring income into the NHS and will end the costs of continued ownership."