Churches that default and those that don’t

When the headlines trumpet the news of a church being foreclosed upon, it is something of a man-bites-dog story because it is so rare. Closer scrutiny shows that how a local parish is organized, their connection (or not) to a denomination, and their theology can be predictors as to which churches might fall into debt trouble.

Daniel Burke of the Religion News Service looked into churches that default and looked for patterns and what they might teach us.

Despite headlines trumpeting churches in debt and being foreclosed, the phenomenon is very rare.

In fact, if you read the raft of high-profile articles closely, they report that a very small percentage of churches are facing foreclosure.

As the Associated Press noted in an article published this month, it’s hard to count exactly how many churches are in trouble because records are scattered throughout county offices nationwide. At the same time, banks don’t like to admit they made bad loans, and churches don’t often cop to being overly ambitious.

But the Wall Street Journal was able to report that “dozens” of churches are listed as delinquent on their loans, according to the newspaper’s search of county records nationwide. At the same time, “most” of the 335,000 churches in the U.S. “carry little or no mortgage debt,” the paper reported.

The New York Times hired a data provider to dig a little deeper and found that 0.31 percent of the 82,441 churches it studied were facing foreclosure.

Churches were always considered by bankers to be safe risks for loans because they had a steady stream of contributions and paid their debts. But starting in the 1990’s, with the rise of churches building commercial-style auditoriums and spaces that mimic commercial properties, there came something of a building boom in churches. And just as the market fell out of mini-mansions, some of these sort of churches began to get into financial trouble.

The most common blame is placed on a fall off in contributions due to the recession. But Burkes says that the actual performance of congregations do not bear that out.

Just 28 percent of evangelical pastors reported that charitable contributions were significantly lower (10 percent) than their goals in the fourth quarter of 2008, according to study by the Evangelical Council for Financial Accountability.

Historically, economic recessions don’t necessarily mean declining donations, Empty Tomb, an Illinois-based ministry that studies church finances, told the (Ala.) Birmingham News. From 1968 to 2005, church giving declined in only three of the 10 years that witnessed a month or more of economic distress, Empty Tomb said.

Often, it’s personality conflicts, pastor scandals or other headaches that lead to church bankruptcies, scholars say.

And mainline churches don’t have bankruptcy problems. Valerie Munson, an expert on church property law at the University of St. Thomas School of Law in Minneapolis, says that when mainline Protestants open a chapel or sanctuary, they symbolically give it to God.

“To them, the space itself is dedicated to God and holy,” Munson said. “To place a mortgage on the property—to give a secular bank a business interest in the property—is contrary to that holy purpose to them. It is giving to someone else part of what you have given to God. “

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.”

At the same time, hierarchical denominations like mainline Protestants usually insist that local congregations hold church buildings in trust for the denomination and cannot mortgage the pews and steeples. In fact, many require permission to lease church buildings for longer than a year, Munson said.

So what kinds of churches avoid bankruptcy or foreclosure? The churches that teach stewardship pay their bills. Churches that are accountable to a denomination, especially those who hold their properties in trust to a denomination tend not to pay for ordinary mission with debt. And churches that dedicate their spaces to God are all likely to either avoid debt or pay off the debt they do take on.

Read the rest here.

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