Banks drop the foreclosure hammer on churches

Banks are foreclosing on America’s churches in record numbers as lenders increasingly lose patience with religious facilities that have defaulted on their mortgages, according to new data.

The surge in church foreclosures represents a new wave of distressed property seizures triggered by the 2008 financial crash, analysts say, with many banks no longer willing to grant struggling religious organizations forbearance.

Since 2010, 270 churches have been sold after defaulting on their loans, with 90 percent of those sales coming after a lender-triggered foreclosure, according to the real estate information company CoStar Group.

In 2011, 138 churches were sold by banks, an annual record, with no sign that these religious foreclosures are abating, according to CoStar. That compares to just 24 sales in 2008 and only a handful in the decade before.

The church foreclosures have hit all denominations across America, black and white, but with small to medium size houses of worship the worst. Most of these institutions have ended up being purchased by other churches.

The highest percentage have occurred in some of the states hardest hit by the home foreclosure crisis: California, Georgia, Florida and Michigan.

“Churches are among the final institutions to get foreclosed upon because banks have not wanted to look like they are being heavy handed with the churches,” said Scott Rolfs, managing director of Religious and Education finance at the investment bank Ziegler.

Church defaults differ from residential foreclosures. Most of the loans in question are not 30-year mortgages but rather commercial loans that typically mature after just five years when the full balance becomes due immediately.

Its common practice for banks to refinance such loans when they come due. But banks have become increasingly reluctant to do that because of pressure from regulators to clean up their balance sheets, said Rolfs.

“A lot of these loans were given when the properties were evaluated at a certain level in 2005 or 2006,” Rolfs said. “Banks have had to reappraise the value of these properties, whether it’s a church or a commercial office building. Values have gone down, so the loans cannot continue in the same form.”

The factors leading to the boom in church foreclosures will sound familiar to many private homeowners evicted from their properties in recent years.

During the property boom, many churches took out additional loans to refurbish or enlarge, often with major lenders or with the Evangelical Christian Credit Union, which was particularly aggressive in lending to religious institutions.

Then after the financial crash, many churchgoers lost their jobs, donations plunged, and often, so did the value of the church building.

CONGREGATIONS IN TROUBLE

Solid Rock Christian Church near Memphis, Tennessee, took out a $2.9 million loan with the Evangelical Christian Credit Union at the beginning of 2008, to construct a new, 2,000 seat, 34,000 square-foot building to house its growing congregation.

In the middle of construction, the economy crashed. The church raided its savings to finish the project, but ended up defaulting on the loan.

The ECCU foreclosed and put the church up for auction.

“We are still fighting this,” a church spokesman told Reuters. “We have filed for bankruptcy to stop this foreclosure and to restructure our debt.”

At the iconic Charles Street African American Episcopal Church in Boston, Massachusetts, churchgoers and clergy accuse the bank of being unwilling to negotiate.

The church is being threatened with foreclosure and a March 22 auction by its lender OneUnited bank, America’s largest black-owned bank.

The bank says the church, which was founded in 1818 and played a major role in the anti-slavery movement, has defaulted on a $1.1 million balloon loan that came due in December 2011.

A balloon loan is a long-term loan, often a mortgage, that has a large, or balloon, payment due upon maturity. They often have very low interest payments and require little capital outlay during the life of the loan due to the large end payment.

The church is also involved in separate litigation with OneUnited involving a 2006 loan of $3.6 million that financed the refurbishment of two buildings into a community center.

“We want to refinance and we want to pay. It’s doable, we have the means to do it but we can only do it if they actually sit down and talk to us,” said the Rev. Gregory G. Groover Snr, the church’s pastor.

Groover said the church did not default by missing monthly payments, but is in trouble because the loan ballooned.

“We don’t have a million dollars to pay off the loan. I don’t know what church does. The idea of auctioning off a church is senseless,” he said.

In a statement provided to Reuters, OneUntied said it was not its practice to discuss the details of “any discreet customer relationship”.

“It is not the practice of the Bank to exercise collection remedies including foreclosure in the absence of good cause. We trust the community will not rush to judgment without full knowledge of all the facts,” it said.

Axel Adams, an Atlanta, Georgia official with the Rainbow PUSH coalition, the civil rights and economic justice organization led by the Rev. Jesse Jackson, said he had seen a “tremendous increase” in churches facing foreclosure.

“And some pastors have not notified their congregants,” Adams said. “They are fearful that if they do, they will lose congregants prematurely.”

Flat Rock Church in Lithonia, Georgia, which dates back to 1860, took out an $850,000 balloon loan with Sun Trust Bank in 2005 to fund a new 300-seat church.

In May 2010 the loan became due. The bank foreclosed and the church is due to be auctioned off next month.

“The bank has refused to negotiate and to this day I just don’t know why,” said Binita Miles, the church pastor.

A spokesman for Sun Trust said: “We view foreclosure as an action of last resort. We have been working for several years to address the issue with the client in hopes of avoiding foreclosure.”

There are more than 300,000 churches in the United States.

“The church foreclosure market isn’t anything extraordinary,” said Rolfs. “It’s simply another byproduct of the credit bubble.”

(Reporting By Tim Reid; Editing By Jonathan Weber and Michael Perry)

(c) Copyright Thomson Reuters 2012

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9 Responses to "Banks drop the foreclosure hammer on churches"

  1. woody188  March 9, 2012 at 9:47 am

    It’s about time they started talking about the commercial real estate crisis. Funny how just last July Fox Business was trying to lure more people into the REIT trap. But you know how it is, they have to lure in some suckers to buy them out before the crash, even though commercial real estate was already to the breaking point at the time this came out. One can’t keep flipping loans and growing the principal forever. Without new business renting, this bubble is going to burst.

  2. Scott Rajavuori  March 9, 2012 at 2:28 pm

    This is really a shame for these churches. Sorry to hear it.

  3. Jon  March 9, 2012 at 8:29 pm

    I would be a lot more sympthetic to them if they paid appropriate taxes.

    J.

  4. Jon  March 10, 2012 at 1:21 am

    In order to deflect possible criticism based upon the ‘Congress shall make no law’ provision of the 1st Amendment of the Bill of Rights, I give you these:

    This is strictly from California, but here you have a law that is absolutely blatantly written for a church, and is in violation of the California State Constitution:

    California State Constitution Article XVI Section 5, a relevant quotation:

    “Neither the Legislature, nor any county, city … shall ever … grant anything to or in aid of any religious sect, church, creed, or sectarian purpose, …”

    And a link:

    http://www.leginfo.ca.gov/cgi-bin/waisgate?waisdocid=35598226261+0+0+0&waisaction=retrieve

    See also Article XIII, Section (f).

    And the law, a relevant quotation from the California Revenue and Taxation code section 206.1(a) :

    “all real property that is necessarily and reasonably required for the parking of automobiles of persons who are attending religious services, or are engaged in religious services or worship or any religious activity, is exempt from taxation.”

    The link:

    http://www.leginfo.ca.gov/cgi-bin/displaycode?section=rtc&group=00001-01000&file=201-241

    I hold that writing a law that provides an exemption is exactly the same law as writing a law providing a prohibition, and that an exemption from a blanket property tax is very much “granting aid” to exactly those categories explicitly prohibited.

    So no. I’m not real sympathetic.

    J.

  5. Jon  March 10, 2012 at 1:23 am

    Sorry, “See also Article XIII Section 3 (f)”. When the other comment comes out of moderation, that’ll make sense.

    J.

  6. Keith  March 10, 2012 at 8:23 am

    I’d like to see some of these evangelical “mega church’s” federal 501(3)(c) tax exempt status challenged based on their increasingly blatant political advocacy.

    The federal non-profit tax laws specifically prohibit such activity. However, that doesn’t seem to deter the “Bible thumpers” from continuing to spew their far right wing political views from their pulpits

    How they continue to get away with it is quite beyond me.

  7. Tom  March 10, 2012 at 9:24 pm

    A few years ago my broker showed me how we could sell the farm and buy a piece of commercial property probably a shopping mall in a REIT. He said it was a win all the time since real estate especially commercial never went down. If I had followed his advice we could have lost everything. Just yesterday our local mall was sold for pennies, and is 70% empty and has not been full in over 6 years.

    • woody188  March 12, 2012 at 4:20 pm

      That’s been my perception too. I think the farm will be worth more in the future too. Malls don’t grow food.

  8. griff  March 11, 2012 at 11:51 am

    Just another sign of a crumbling country.

    Dude, where’s my job?

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