"No one wants to foreclose on God," San Francisco Bay Area realtor Charles Williams told a local paper late last year. But it happens.
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.
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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.
