CorEquity

HERE ARE THE FACTS.

 

The surge in church foreclosures represents a new wave of distressed property seizures triggered by the 2008 financial crash, analysts say, with many banks no longer willing to grant struggling religious organizations forbearance.

 

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.

 

The church foreclosures have hit all denominations across America, black and white, but with small to medium size houses of worship the worst. Most of these institutions have ended up being purchased by other churches.

 

Church loan 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.

 

It has been 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.

 

Many National, Regional and Community Banks are selling off their church loan portfolios and leaving the church lending space all together in search of more profitable and predictable commercial clients.

 

The church loan market is an $80 billion dollar industry with $20 billion in loans expected to mature within the next 2 years.  Banks hold over 60% of these loans.  Where will you go if your bank abandons this market as so many already have?

 

SO WHAT ARE FAITH BASED ORGANIZATIONS TO DO?

 

Your choice of a long term church financing capital partner has never been more important to the ongoing financial health and sustainability of your ministry.  Do you know the new rules that govern and restrict ministries from securing low cost, long term financing from financial institutions?  Do you know if your ministry is susceptible to loan cancellations, non-renewals, rate hikes or new restrictive loan covenants? Do you know if you qualify for Tax-Exempt financing which could lower your financing costs by 50%?  With over 280 church foreclosures in the past 2 years and ministry lenders leaving in droves, you cannot afford to choose the wrong financial partner or start new financial negotiations uninformed.

ARE YOU PREPARED...

 

LOOK AT OUR FINANCIAL STRESS TEST BELOW...

 

It is important that you give your church a stress test in the following areas to determine whether you are in trouble or headed for trouble.  If you answer yes to any of the following questions, you will encounter a new normal in ministry lending.  How you address these issues will affect your future.…

 

• Tithes and Offerings - Are they decreasing in aggregate?

• Tithes and Offerings -–Have they decreased per attendee?

• Tithes and Offerings - Does normal giving vary widely week to week?

• Concentration of Giving - Is the ministry overly dependent upon a small group of constituents that could jeopardize the stability or sustainability of the ministry?

• Attendance - Is weekly attendance decreasing?

• Memberships - Are new member classes decreasing?

• Mortgage Loan - Has your loan matured or is your loan maturing soon?

• Mortgage Loan – Will your interest rate be reset at maturity and do you have to re-qualify?

• Mortgage Loan - What negative loan covenants must you maintain?

• Mortgage Loan - Are you susceptible to interest rate and credit risk?

• Mortgage Payments - Are you late or behind on any payments?

• Property Values - Has the value of your church property declined since the original issue date of your current loan?

• Debt-to-Income - Does your monthly mortgage payment consume more than 30% of your sustainable monthly income? (normal tithes and offerings only)

• Compensation Costs - Do payroll costs for all employees, including all benefits, payroll taxes and regularly paid 1099 contractors exceed 35% of your operating budget?

• Cash Reserves - Do you maintain at least 3 months of operational cash on hand?

• Cash Reserves - Are you using cash reserves or designated funds to pay mortgage debt, payroll or other operational expenses?

• Expenses - Have you had to let employees go or discontinue any ministry programs?

• Expenses - Are you current with all required payroll or other tax payments due?

• Campaigns - Are you conducting any kind of special campaigns or appeals in addition to normal tithes and offerings just to meet general expenses of the ministry?

• Financial Management - Do you have a paid full time financial officer?

• Annual Budget - Do you prepare and track an annual operating and capital budget?

• Contingency Planning - Has leadership developed a plan for succession, emergencies and extraordinary growth?

 

If you are experiencing church loan distress in any of these areas or maybe your loan is already in default, forebearance or forclosure, we may still be able to offer you a solution.  Go to our RESULTS page (CLICK HERE) and see how we have helped other ministries in similar circumstances.  This I can guarantee, you are not alone.

 

All initial conversations are free of charge and confidential.  Call us today if we can be of assistance.