Forgive us our debt

U.S. homes entering the foreclosure process hit a seven-month high in October. Some 77,733 properties received an initial default notice during the month, up 10 percent from September, according to foreclosure listing firm RealtyTrac Inc.

But homeowners aren't the only ones being hit by foreclosure. Church foreclosures are at an all-time high. Since 2008 more than 200 churches and other religious organizations have faced foreclosure, according to real estate services firm CoStar Group. In the decade before 2008, church foreclosures were rare, averaging less than 10 per year.

Tim Trainor, a spokesman for CoStar, said 2011 is so far the worst yet, including the "highest dollar volume" ever in the second quarter of 2011, when 20 properties totaling more than $27 million went into foreclosure.

These foreclosures are likely just the tip of the iceberg. No one really knows how many churches not officially in foreclosure are on the brink. Take, for example, The Church at South Las Vegas. The church started in 2001 by Pastor Benny Perez now has more than 4,000 in regular Sunday morning attendance. But the church also has a $53,000 per month mortgage payment, and it can't sell any of its real estate because that real estate is now worth at least $5 million less than what the church paid for it.

"Our back is against the wall," Perez said in July. His answer: The church declared bankruptcy and stopped paying its mortgage. St. Louis-based First Bank has since sued the church. Mitch Fox, a spokesman for the church, would not answer WORLD's questions except to say that the bank and the church were in "sensitive negotiations."

The causes of these financial problems are not mysterious: Churches face many of the same economic realities as other property owners. Declining offerings from recession-plagued families, plunging property values, and less leeway from the banks when they get behind on their mortgages have contributed to the foreclosure crisis.

Of course, the number of foreclosures may seem small compared to the approximately 300,000 Christian churches in the United States, but they tend to take place with larger churches, larger sums of money, and greater attention by the media. California's Crystal Cathedral made national headlines earlier this year when it declared bankruptcy with an estimated $50 million debt. "When a church doesn't pay its bills, it's a terrible witness," said Dan Busby, president of the Evangelical Council for Financial Accountability.

Vital ministries to the community also take a hit. Templo Calvario, in Santa Ana, Calif., was forced to close temporarily a food bank it had operated for 25 years in order to keep up payments on a $9 million loan for a super-sized sanctuary.

The church foreclosure crisis also has an impact on financial institutions that specialize in church financing. The nation's largest such organization, the Evangelical Christian Credit Union (ECCU), was the subject of a WORLD profile two years ago ("Losing credit?" Dec. 19, 2009). At that time, spokesman Jac LaTour said, "We've increased reserves for loan losses. We think they're more than adequate."

They weren't-not by a long shot. ECCU increased reserves to account for future loan losses by about $7.2 million to a total of $11.5 million in 2009. This was the number that LaTour said would be "more than adequate." But ECCU has had to increase reserves by millions of dollars since then, including an additional $7.2 million in 2010, which brought the reserve account total to $18.69 million. The Credit Union has not made money since 2008, and its cumulative losses since then now exceed $30 million.

On the other side of the ledger, the ECCU still has assets of more than $1.1 billion and the National Credit Union Association considers it "well capitalized," meaning that its net worth was at least 7 percent of assets. (ECCU's $95.3 million net worth was 8.2 percent of assets.) However, Tony Plath, a banking analyst with the University of North Carolina at Charlotte, said, "Another year of credit losses like they experienced in 2010 and they won't survive 2011 as a well-capitalized institution."

The bad news for ECCU and other financial institutions with church loans is that 2011 will likely be even worse than 2010. ECCU's LaTour could not say how many loans it would foreclose this year, except to say that "this year would probably be the peak"-in other words, the worst year yet.

That's one reason ECCU-which had not foreclosed on a single loan in its history until 2007-now has about 35 foreclosed properties on its books, which is all but about 10 of the properties on which it has foreclosed since 2007. That's not good, according to Scott Rolfs, a managing director with Ziegler & Co. who specializes in religion and education finance. "It's not a good time to sell church real estate," he said.

So will 2012 be any better? Probably not. CoStar's Trainor put it succinctly: "Clearly the trend does not appear to be improving."