Banks are foreclosing on more churches

Houses aren’t the only structures being foreclosed on during this economic crisis. Churches have been hit hard in recent years:

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…

“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.

Several things strike me here:

1. It would be interesting to talk with banks about how they negotiate this situation where they don’t want to appear heavy-handed with churches and yet still need to profit off their mortgages. Where is the line – is it just about the amount of money involved or does the possible response from the congregation also factor in? The article hints that these aren’t strictly business decisions but include consideration of cultural and moral values.

2. While the article suggests these foreclosed on churches are often bought by other churches, what kind of market is there for people to buy former churches who want to use the existing building? I’ve seen some interesting pictures over the years of churches that are converted into residential spaces (either large homes or multi-family units) but this requires the extra time and resources for rehab. I assume newer, auditorium-type churches might be more attractive here.

3. Will there be any extra indignation about churches outspending their means and not being able to meet their mortgage obligations?

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