Smart SpendingSmart Spending

Church foreclosures growing

Just like homeowners, some congregations used risky financing to buy property. Now, values have collapsed, congregations have shrunk and huge balloon payments are coming due.

By MSN Money Partner Mar 15, 2012 11:35AM

This post comes from Marilyn Lewis at MSN Money.


Abandoned church (© Deon Reynolds/Getty Images)Foreclosures are growing among churches across the country. A spate of recent stories examine why the problem is surfacing now and how some churches -- once considered reliable borrowers because of their steady streams of income from tithing and weekly donations -- fell into trouble.


The number of churches facing foreclosure is hard to pin down. Reuters quotes real-estate information company CoStar Group:

Since 2010, 270 churches have been sold after defaulting on their loans, with 90% of those sales coming after a lender-triggered foreclosure.  
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.

(Post continues below.)

Unconventional financing

The Wall Street Journal accompanied its article "Churches find end is nigh" with a video report describing how some troubled churches used unconventional bonds rather than traditional 25- or 30-year church mortgages:

Just as homeowners borrowed too much or built too big during boom times, a number of churches did the same and now are struggling to hold on as their congregations shrink and collections fall off due to rising unemployment and a weak economy.
During the real-estate boom a number of banks lured churches with lower interest rates on shorter term loans. . . .  At the same time, aggressive bond underwriters began offering churches more money up front if they issued so-called 'compound-interest' bonds. Many of these bonds are set to come due over the next few years. But with values down and cash in short supply, many churches won't have the funds to pay off the bonds and will have trouble refinancing.

The bond option often means no payments for years. Eventually, though, huge balloon payments come due for both principal and accrued interest, often double the loan amount.


Small evangelical churches hit harder

All denominations have taken a hit from declining donations. But foreclosures most affect small, independent evangelical churches that lack financial oversight from a church hierarchy, says Religion News Service, which wrote about the origins of the problem two years ago. The subscription-only RNS article is reposted here.


RNS quotes banker Dan Mikes, a church-loans specialist for 18 years at Bank of the West in Walnut Creek, Calif. Historically, Mikes said, bankers considered church loans a good investment because donations provided a steady stream of cash.

That all changed in the late 1990s, bankers say, around the same time subprime mortgages and McMansions became hot. Churches competed to keep up with Pastor Jones across the street. They have a café, we want a café. They have a 1,000-seat auditorium, we want a 2,000-seat auditorium.
New banks heard churches were a safe market to dabble in. They overestimated churches' growth projections and threw money at them, said Mikes.

Valerie Munson, church property law expert at the University of St. Thomas School of Law in Minneapolis, said Roman Catholic parishes are owned by dioceses, which assert financial control and hold deeds in the bishop's name.


Mainline Protestants refrain from mortgaging sanctuaries, considering the space holy and belonging to God, says RNS. Mainline denominations usually exert firm control, typically requiring local congregations to put real estate in a trust.

In contrast, evangelicals don't think about their relationship to God in terms of space itself being dedicated to the Almighty, Munson said. "They are more likely to think in terms of their worship and their mission -- if mortgaging a building will serve their mission (how they are using their lives for God), then they are living faithfully."

Distressed markets

"Most of the distressed churches are in the hardest hit real-estate markets, such as California, Michigan and Florida," reports National Public Radio.


Scott Rolfs at Ziegler, an investment bank that helps churches obtain financing, told NPR that "the easy credit in the mid-2000s" exacerbated church financial problems. He had words of comfort for the religious, though: "For 99% of the church-going public in America, their church is coming through the recession just fine."


NPR adds:

After all, there are more than 300,000 houses of worship in the U.S., so a few dozen foreclosures does not spell the End of Times. In fact, mega-churches, which like large companies have bigger reserves, saw their income increase 3% last year.

Another comfort: Church defaults can't touch individual congregants "unless membership requires that you personally sign a document accepting responsibility for loans to the church," writes San Francisco attorney Michael Hassen in response to a question at, an expert advice site.


More on MSN Money:

Apr 2, 2012 3:10PM
Taxing churches will help foreclosures? That is what the article is about after all. Too many churches got into the building is what is important. Just opposite the message given in the Bible. The building does not make the church, the people do. If you have a faithful group, they don't need a building.
Apr 2, 2012 2:39PM
Yeah, this is what you get when the church bldg is heavily financed instead of just building what members can afford to pay for by means of pledges.  If there aren't enough active members to support a new building or addition then hang on with what you have until membership grows.  The church my wife and I belong to payed off debt many years ago and whenever we've needed to remodel or add space it was done by way of member's pledges.
Apr 2, 2012 5:07PM
It's time for all the social club/religious institutions to pay taxes.This non profit shelters that these church/clubs use need to come to an end.
Apr 2, 2012 2:49PM

This just occured to me.  How in heaven's name (pun intended) does a church get a mortgage in the first place?  Does it have to open its books to demonstrate its income (which could be extremely variable)?  Does it have to have a co-signer?  Any church I have visited does not have a "steady" income so how does the lender even know it the church is going to make the payments?  Incredible!


Mtnfools, I am with you, since so many churches have gotten into politics and other public issues I am ready to revoke their tax-exempt status.

Apr 2, 2012 4:30PM

I give a full 10% to the church, off the top of my gross income.  It's what Christians are called to do, and part of living the Christian life.   If everyone in a true Jesus community  gives 10%, then churches don't have to worry about paying the light bill but are outwardly focused as they should be (ex. feeding the poor).  Unfortunately some churches have morphed more into a spa for the self righteous.





Apr 2, 2012 5:08PM

Once I learned that Pastors for the USA Presp church made over 150k, I quit going to church. Church is a business and it's full of greed and money changers. Christians are very fearful people. They don't usually associate with non Christians. They think they are better than you.  Christian church is another word for Cult.  Your Pastor laughs at the little guy. His kids go to private schools while yours barely have enough to eat. God is great but man and his religion have been nothing but a brick to hit people over the head with for years. If you want to know about God, read the bible.

Apr 2, 2012 5:30PM
This is our least problem. In the near future, other countries, led by China,  may decide to foreclose on America. People are idiots for not uniting and fighting the corrupt political and financial system in America.
Apr 2, 2012 3:05PM
THANK GOD (lol'd). There's too many where i live, let them fall. i literally have 2 churches with the same exact faith within 400 feet of each other, please tell me the point of this.
Apr 2, 2012 6:18PM
A church is just a structure. It shouldn't require a church in order to do community work or worship your deity.  If all churches went through foreclosure and you had no fancy building to go to, would you stop coming together as a religious community?  I would hope your conviction is stronger than that.

This is coming from an Atheist.  My very religious friends would worship in a dark alley if they had no other place to go.
Apr 2, 2012 5:05PM
Hello ,i ALMOST Lost my home . We needed to make some cuts in our Living expenses. So it's ok tell your Priest or Pastor he can return his BENZ that  you all PAYED FOR !!!!!!!!!!
Apr 2, 2012 5:37PM
I decided in the eighties that I would donate to organizations that assist the destitute world wide, rather than give to churches. Most ministers are nothing more than hustlers. They should live by the word, and care for themselves through work. They remind me of some pimp friends from my past.
Apr 2, 2012 3:36PM
Taxes are subsidizing churches? Where is this separation of church and state so many want to point to all the time? Churches bring in money through the people that attend. They pay their bills from those funds. Yes even the clergy gets paid, and some, not all pay tax on their wages. They pay into social security as well. Some churches do work in their communities that the cities can no longer handle because they are tapped out.
not all domination's are struggling.  the catholic institution takes in millions in donations each quarter.   while they have closed churches here and there, it is not due to money but lack of attendance and diminishing faith. 
Apr 2, 2012 2:54PM

Maybe....just maybe. The parishioners cant afford to keep giving away their money in these times

Maybe.....just maybe. A lot of them are fed up of hearing the same old story every Sunday. I suggest calling in George Carlin, he's has been telling the real  truthful story for ages, RIP George.

Apr 2, 2012 4:22PM

Scare tactics and guilt? A conscience makes a person feel guilty. A church can't do that. Fear comes from the unkown. Again, the church can't do that either.


Reality is what a person makes it to be. Look around, is there reason in this world right now?

Apr 2, 2012 7:25PM
@ voice ... fair enough. Yet, "not supporting a cause" is one thing and hateful words are another.

We wonder why our kids are bullying one another and killing themselves? They're just kids, that's just what they do...? No. They're kids who see and hear things at home and on these message boards (although I doubt my kid is reading articles on church foreclosure rates.)  But the point is that we can be better to one another, religious or not, rep or dem. I'm not trying to be utopian here - the fact is that I read the first 10 messages on this board and 10 out of 10 were hateful. That's just crazy. I would not want to live near any of these people, and it's not because of their religion, or lack thereof, or their political affiliation.

The GOP is just a handful of people. I don't support a lot of their views either but it wont stop me from being a decent person in my everyday life.

Apr 2, 2012 3:58PM
It's time to take churches off welfare anyway .... make them pay corp taxes as well as take away the tax exempt status on sales taxes, etc.  They are high cash businesses in the game for profit.  They should also be investigated for selling an invisible inventory thru scare tactics and guilt. 
Apr 2, 2012 3:54PM

Serves 'em right .... greed and gluttony are finally catching up with them ..... 

Apr 2, 2012 6:15PM
Just curious, of those of you espouse that non-profits should pay taxes, would you also include all non-profits?  Hospitals, credit unions, cooperatives, or certain insurance groups?
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
100 character limit
Are you sure you want to delete this comment?


Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.


Smart Spending brings you the best money-saving tips from MSN Money and the rest of the Web. Join the conversation on Facebook and follow us on Twitter.