California Churches Close


Inquiring minds are reading a very interesting article in the WSJ. Many don’t realize that residential and commercial real-estate owners aren’t the only ones losing their properties to foreclosure. The last few years have seen a very large number of churches losing their facilities to foreclosure because they can’t pay the mortgage:

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.

The reasons are not that complicated. Mostly, churches ran into trouble because they needed to accommodate growing congregations in once-booming housing markets and borrowed capital to build bigger houses of worship.

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.

That last line is an understatement. Remember, when a bank forecloses on a church it is not only bad publicity. The bank is foreclosing on a multitude of families. And those families will remember how their community was treated for quite awhile. This is why most banks will do anything before lending to a church. It is not that they are anti-religeous but just don’t want the headaches that may come later.

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