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— Hard Times —
Christmastime, Williams hung a "for sale" sign outside the Upper Room Pentecostal Church in suburban Hayward, Calif., after the church failed to make several months' worth of mortgage payments. The foreclosure triggered an emotional reaction. Media showed up. Donations poured in. The church is hanging on. Individual donations have kept the lender at bay. The minister, Rodrigo Beltran, says he hopes he can obtain a new $1.7 million mortgage. This story may have a happy ending. Others don't. In these recessionary times, churches across America are going broke. A surprising number of churches face foreclosure. Beltran says he knows of five congregations in the San Francisco area in which churches were lost to foreclosure. After a South Memphis, Tenn., Baptist church went on the block in May, an investigation by the newspaper Commercial Appeal turned up one dozen church foreclosure notices in Memphis' Shelby County.
Many churches live on the edge, especially those independent of larger denominations. With few exceptions, "income" depends on congregant donations. Hard times, demographic changes, ambitious expansion, even loss of faith in the minister have created financial peril. A church outside San Diego, for example, was foreclosed earlier this year in the wake of a paternity scandal and the senior pastor's very public divorce. To postpone the day of reckoning, dozens of churches are filing for bankruptcy, based on a cursory search of U.S. Bankruptcy Court dockets. "I've got more cases than I've ever had before," says Coleman Young, an Amarillo, Texas-based attorney with Templeton, Smithee, Hayes, Heinrich & Russell LLP. Young represents bondholders in several church filings. These cases shouldn't be confused with the bankruptcies of Roman Catholic dioceses, where the church used Chapter 11 to forestall sex abuse-related lawsuits. Some of the issues related to these bankruptcies sound all too familiar to distressed homeowners and their lenders. But church bankruptcies exhibit some peculiarities as well. For one, creditors may turn out to be the congregants. Bonds are often used to raise funds for new church buildings, and these are peddled to the congregation. "Bondholders in general tend to be elderly and retired. They count on these bonds for income," says Young. "They're lending to the church because they're sure a church will repay." Creditors are in no hurry to seize assets. Putting a congregation on the street doesn't make for good publicity. Less obvious, what lender wants to end up owning a church? "They're hard to sell," Young says. The only potential buyers tend to be "other congregations," he adds. "We work like mad to avoid something like this," says Jac La Tour, the spokesman for Evangelical Christian Credit Union, which foreclosed on the Ambassador Family Church. The credit union took back the property in a trustee sale in May and listed it with a realtor specializing in religious buildings. Young agrees. "My directions from the lenders are 'See if you can work with them.' " Churches fall months, even years, behind on mortgages before lenders threaten foreclosure. Any kind of repayment schedule can forestall action. "After no ifs, ands or buts, then [debtors] may file for bankruptcy." Many Chapter 11s eventually fail. The churches are unable to file a reorganization plan. Stays on the foreclosure are lifted. The bankruptcies are dismissed. Most churches facing foreclosure are small congregations with modest buildings in marginal neighborhoods. Upper Room Pentecostal's 125-person congregation is primarily Latino, "normal, hardworking people making enough to get by," Beltran says. A few are suburban palaces that made big real estate bets. A few years ago, the Ambassador Family Church built a glass and concrete showcase for more than 1,000 congregants in Oceanside, Calif. Last year, land and building were assessed at $5.6 million. Before the congregation was forced out, most seats were unoccupied. Some churches "get overly aggressive, just like a business," Young says. "They miscalculate. They discover the giving [by congregants] is just not the same as what they believed it would be."
Matt Miller covers distressed investing for The Deal. |
"No one wants to foreclose on God," San Francisco Bay Area realtor Charles Williams told a local paper late last year. But it happens.
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