Houses of God Turn to Chapter 11 in Book of Bankruptcy
Amidst a nationwide recession, financial credit meltdown and foreclosure crisis, churches also are praying that they can meet their next mortgage.
The era of easy credit has begun taking its toll on even the most sacred of borrowers, religious institutions. Many churches expanded during the real estate boom, as banks large and small lent money based on assumptions about growth in their donations.
Hundreds of churches across the country have received foreclosure notices in recent months, and even more are behind on mortgage payments.
We think of our local churches as being solid, indestructible, and always there for us, whether we be practising or non-practising churchgoers. But the times of the old-line congregations with their buildings being free and clear are gone.
Now, since the economy's fallout, some churches have lost members, as people move elsewhere, and even some of the older churches have had to borrow to survive. Also, while membership seems to rise when the economy falls, the amount of donations to the collection plate tends to dwindle. People just don't have it to give anymore.
"We are seeing more stress in churches than we have in modern history," says Mark G. Holbrook, president and chief executive of the Evangelical Christian Credit Union of Brea, Calif., which specializes in lending to churches. The credit union has moved to foreclose on seven of its 2,000 member churches this year, and Mr. Holbrook says he expects to take similar action against two more next year. Before now, it had foreclosed on only two churches in its 45-year history.
Church Mortgage & Loan Corp. of Maitland, Fla., another church lender, foreclosed on 10 church properties in the past couple of years. Unable to sell any of them, the company didn't have the funds to pay more than 400 bondholders the estimated $18 million it owes, says company lawyer Elizabeth Green. Church Mortgage filed for Chapter 11 bankruptcy protection in March.
Borrowing by churches became more common in the 1990s, reaching $28 billion nationwide in 2006, including mortgages, construction loans and church bonds, according to Lambert, Edwards & Associates, a consulting business in Grand Rapid, Michigan.
At least a quarter of religious properties have mortgages, according to an analysis of property and mortgage filings in 115 United States counties completed for The New York Times by First American CoreLogic, a data provider in California. Foreclosure filings have fallen on the doorstep of 254 properties, or 0.31 percent of the 82,441 churches studied. The percentage is higher when churches without mortgages are excluded.
Veterans of church lending predicted most church loans would not fall into the same kind of trouble as the housing and office markets.“You’re beginning with a borrower that considers it a moral obligation to repay his loan,” said Timothy Horner, a partner with Warner Norcross & Judd, a law firm in Grand Rapids, Mich., who has worked on church financing issues.