Churches Find End Is Nigh

The Number of Religious Facilities Unable to Pay Their Mortgage Is Surging

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The Falling Away

“Let no man deceive you by any means: for that day shall not come, except there come a falling awayStrongs 646: apostasia, ap-os-tas-ee´-ah; feminine of the same as 647; defection from truth (properly, the state) (“apostasy”):—falling away, forsake. first, and that man of sin be revealed, the son of perdition;”
—2 Thessalonians 2:3

ROSEVILLE, Calif.—Residential and commercial real-estate owners aren’t the only ones losing their properties to foreclosure. The past few years have seen a rapid acceleration in the number of churches losing their sanctuaries because they can’t pay the mortgage.

Just as homeowners borrowed too much or built too big during boom times, many churches did the same and now are struggling as their congregations shrink and collections fall owing to rising unemployment and a weak economy.

Since 2008, nearly 200 religious facilities have been foreclosed on by banks, up from eight during the previous two years and virtually none in the decade before that, according to real-estate services firm CoStar Group, Inc. Analysts and bankers say hundreds of additional churches face financial struggles so severe they could face foreclosure or bankruptcy in the near future.

“Churches are the next wave in this economic crisis,” says Rev. Jesse L. Jackson Sr., president and founder of the Rainbow PUSH Coalition, a non-profit civil-rights group, who works with pastors around the country to help churches negotiate better terms with their bankers.

Religious denominations of all kinds have suffered in recent years as donations have declined, with many Catholic parishes closing and synagogues merging their congregations. But the property-financing problems have been concentrated among independent churches, which while seeking to expand lack a governing body to serve as a backstop to financial hardship.

“Religious organizations may be subject to the laws of God but they are also subject to the laws of economics,” said Chris Macke, senior real-estate strategist at CoStar. Many troubled churches, he said, are in states such as California, Florida, Georgia and Michigan, which also have some of the highest home-foreclosures rates in the country.

In many cases, churches ran into trouble after borrowing to build bigger houses of worship needed to accommodate growing congregations in once-booming housing markets.

Pastors Rich and Lindy Oliver decided their Family Christian Center needed more space after their congregation rose from a few hundred in the early 1990s to 650 by 2002. The church borrowed $4.2 million and began building a new 1,000-person sanctuary on 11 acres in Orangevale, Calif., including classrooms and a space for adult learning.

But when housing prices across California began tumbling in 2006, followed by a surge in unemployment and foreclosures, many congregants moved away, and those who were left reduced their tithing sharply. Meanwhile, the property, valued at $8.5 million in 2002 was appraised at just $2.5 million in 2008.

Stretched to the limit, the pastors stopped making payments. “I just told the bank to take it,” Mr. Oliver said. “If you’re a church with a piece of property upside down and no one will refinance the loan or lend you more money, there’s not really another choice but to walk away.”

Bankers and lenders typically are reluctant to “foreclose on God” and seek to work out deals with churches. But none proved possible in the Olivers’ case.

These days, Mr. Oliver said his church, renamed The Family Church, was “doing what the rest of America is doing—we’re cutting back and simplifying.” In November, the Olivers raised $700,000—not nearly enough to rescue the previous church—from donations and personal loans from church members and used it to lease a former furniture store in a strip mall in Roseville, Calif.

Traditionally, lenders considered churches good risks because of the weekly cash flow generated by tithing, as well as the moral compulsion felt by most pastors to pay down debt.

Like many churches, Mr. Oliver used bond financing, not a straight mortgage, to fund construction. Historically, churches wanting to build turned to their governing bodies or to specialized lenders that originated fixed-rate 25-year to 30-year mortgages. During the real-estate boom,

But during the real-estate boom, regional and community banks attracted churches with lower rates on shorter-term loans. At the same time, some bond underwriters began offering churches more money up front if they issued so-called compound-interest bonds. In such cases, churches often paid nothing until the bonds came due years later, but then had to pay both the principal and accrued interest, which often doubled the amount they owed.

Many such bonds come due in the next few years. But with property values down and cash in short supply, many churches won’t have the funds to payand will have trouble refinancing. “In 2011 and the next couple of years, we’re going to see a big maturity wall hitting these churches,” said Scott Rolfs, head of Wisconsin-based investment bank Ziegler and Co.’s Religion and Education practice.

Many churches have also been upended by plain mortgages. Vineyard Christian Fellowship in Sacramento took out a $1.9 million mortgage to acquire a $2.3 million 18,000-square-foot property in 2004 that included a church and two retail spaces. Johnny Zapara, the pastor, had refinanced his own home for $400,000 to make a down payment and expected to pay most of the $17,000 monthly payment with income from retail tenants.

When one of the tenants went out of business and a new one couldn’t be found, Vineyard subsidized the payments for two years. Eventually the church ran out of money. and couldn’t refinance because the value of the property had fallen sharply.The lender foreclosed earlier this month.

“A building does not make a church. We will find a way to continue,” Mr. Zapara said.

  1. Chris Finstad, 25 January, 2011

    I find it interesting how we see just about everyone around us on their way to hell on a daily basis, but we need these million dollar facilities. My Calvary Chapel in Fargo meets in a gym. Would we like a new church building? Sure, but supporting missions and other things is much more important. I grew up in the ELCA and it took me a long time to realize this. Now I understand what’s more important.

  2. Becca, 27 January, 2011

    Perhaps the best choice for churches is to only build or buy when you can pay in full. This would not only make financial sense but also prevent the lavish spending done for elaborate buildings. It’s certainly not wrong for a church to have a building or buildings, but only as God leads and provides.
    Missions is the heartbeat of the local, New Testament church. Support of missionaries who are laboring in the fields should be paramount. But, as one missionary recently reminded me, if there are no local churches then who will support the missionary?
    Although purchasing a building may seem expensive, even something without bells and whistles, if you can pay it up front and then have no monthly debt it’s wise. Renting something means a constant out of pocket cost. If you own a building then much more revenue can be alloted to missions support.

  3. Jon, 30 January, 2011

    I agree with Chris. My church has met in a high school gym for years. I have watched the congregation grow, and then shrink. Why do churches need the palaces that many have built. Its almost like the churches worship their church building more than God. Christians need to tithe though, even if its a dollar because God sees the heart behind it. Its just like the woman Jesus watched deposit her two coins. It wasn’t much but Jesus saw her heart. But it is wrong for pastors to demand money from their members when they can barely scrape by themselves because the church made bad investments and lived well beyond their means.

  4. James, 01 February, 2011

    Jesus did not have churches. He did not pass out a collection plate. He spoke the word to those who would listen.

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