March 9, 2012; Source: Reuters
Reuters reports that many U.S. churches that took out mortgages to purchase their facilities are facing defaults and potential bank foreclosures. According to the CoStar Group, a real estate information service, in 2011, 270 churches were sold after defaulting on their loans; 131 were sold by banks themselves as opposed to the church property owner. Most of the churches facing foreclosures have been “small to medium size houses of worship,” and the highest percentage of foreclosures have been in the same states that have suffered from rampant home foreclosures—California, Georgia, Florida, and Michigan.
Banks have traditionally been flexible with churches about allowing them to refinance their loans and have often been unwilling to foreclose on churches because it would make them seem heavy-handed and callous. But banks are now being pressured to restructure and clean up their mortgage loan pools, making the churches that haven’t paid up easy targets for the banks’ internal auditors.
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Reuters mentions not the big commercial banks, but the Evangelical Christian Credit Union (ECC), which “was particularly aggressive in lending to religious institutions.” As an example, in 2008 ECCU gave the Solid Rock Christian Church near Memphis, Tenn. a $2.9 million loan to construct a new, 2,000-seat, 34,000 square foot church. With the recession, donations and membership from worshipers probably fell and the church began to tap its savings to pay the loan. Eventually, Rock Christian defaulted, prompting an ECCU foreclosure and auction.
In Boston, the Charles Street African American Episcopal Church is facing a March 22nd foreclosure auction because of its default on a $1.1 million balloon loan. The lender is OneUnited, among the largest African American-owned banks. Charles Street is also fighting OneUnited over a $3.6 million loan that paid for the rehab of two buildings used as a community center. Like a homeowner with a subprime loan, Charles Street says that it had been making its payments until it confronted the balloon which it couldn’t pay.
Mainstream banks are also in the picture. Sun Trust Bank gave Flat Rock Church in Lithonia, Ga. an $850,000 balloon loan to build a new 300-seat church. The church defaulted, Sun Trust foreclosed, and now the bank plans to auction the property. The church’s leaders cannot understand why the bank appears unwilling to renegotiate.
In these cases and others, churches are learning the hard experience of millions of American homeowners who couldn’t make their mortgage payments or choked on a balloon call and found themselves negotiating with bankers who didn’t want to negotiate.—Rick Cohen