A San Francisco church is suing a faith-based nonprofit that manages its rental properties, accusing it of defrauding elderly church members so that it could gain ownership of valuable tax credits.

The lawsuit by the board of El Bethel Missionary Baptist Church accuses Christian Church Homes of selling it on a bad deal to renovate its 225-unit senior housing complex “motivated by tens of millions of dollars it anticipated it would receive” in tax credits from the U.S. Department of Housing and Urban Development.

Christian Church Homes counters that the allegations are nonsense. “CCH is a nonprofit organization. There can be no profit motive for doing this,” said its lawyer, Kit Knudsen. “The allegation is just wrong. It’s sloppy, frankly.”

The dispute is over El Bethel Arms, a 33-year-old property in the Fillmore occupied mostly by elderly residents paying subsidized rent with the help of federal Section 8 housing vouchers.

Determining who is right will require the court to unwind complicated financial agreements.

But the conflict speaks to a concern among some local African American churches that properties they purchased more than 30 years ago to create low-income housing with help from HUD are now the focus of people or organizations looking to profit from those properties.

Larger concerns

In another case, Third Baptist Church in the Fillmore last year sued the nonprofit it created decades earlier, accusing it of illegally attempting to sell a housing complex for low-income residents. The church said the nonprofit was “blinded by the riches the gold rush dangles.” It dropped the lawsuit in February in exchange for the resignation of the nonprofit’s board.

“The African American churches in that area purchased relatively inexpensive property and built affordable housing for their parishioners,” said attorney Geoff Spellberg, who represented Third Baptist Church and is now representing El Bethel.

“What we have been seeing is that developers are trying to get involved in the redevelopment process of affordable housing in order to carve some of them out for for-profit development. These plots of land are immensely valuable,” he said.

The relationship between El Bethel Missionary Baptist Church, located at Golden Gate Avenue and Fillmore Street, and Christian Church Homes extends to 1990, when the nonprofit began managing two properties owned by the church, including El Bethel Arms. Nationwide, Christian Church Homes manages 54 housing complexes in six states, according to its website.

Overly complicated deal

In 2013, Christian Church Homes proposed refinancing and rehabilitating the complex using low-income housing tax credits. The board of El Bethel Arms, which oversees the property and is composed of church members, approved the deal — although whether a required quorum of the board members signed off is now disputed by the board itself.

Under the agreement, the property was transferred into a limited liability corporation of which El Bethel Arms owns 51 percent and Christian Church Homes owns 49 percent.

Here’s where the dispute gets complicated: El Bethel’s lawyers say under the agreement Christian Church Homes owns 99 percent of the tax credits for rehabilitating the property — a provision they say the board members unwittingly approved. They say that even though it’s a nonprofit, Christian Church Homes could sell the tax credits to a for-profit developer for tens of millions of dollars. And it is all but guaranteed status as the property manager for the next 15 years.

Christian Church Homes was “not interested so much in improving El Bethel Arms community, but was motivated by the tens of millions of dollars it anticipated it would receive through the use of (low income housing) tax credits,” alleges the lawsuit, which was filed last month.

Christian Church Homes says that is a fundamental misunderstanding of the deal.

Knudsen, its attorney, said under the agreement the next step for the LLC is to get an investor, most likely a bank, that would assume 99 percent ownership of the partnership for 15 years. The ownership percentage and time period are intended to maximize the tax credits for the investor as well as revenue for the renovation, he said.

The investor would in essence pay the LLC for the property in exchange for receiving lucrative tax credits to fix it up. At the end of the 15-year-period, the investor would turn the property back over to the LLC, at which point Christian Church Homes would turn over its stake to El Bethel Arms.

“It looks like a land grab, but it is absolutely the opposite,” Knudsen said. “It is an overly complicated structure between HUD and the IRS.”

So complicated that two board members of the El Bethel Arms’ board who signed off on the deal have now submitted declarations stating they didn’t know what they were agreeing to.

Board feels deceived

The fear is that the church could lose ownership of the property, said Rev. Keva L. McNeill, who joined the church in December 2013, after the agreement was signed.

“The board was deceived and misled,” he said. “The board members were in their mid-70s and older without any real estate experience. ... They were bamboozled.”

Knudsen in turn speculated that McNeill wanted to vacate the deal so that he could bring in a competitor property manager.

“The entire premise that (Christian Church Homes) snookered this unsophisticated board is absurd,” he said.

The lawsuit is currently in San Francisco Superior Court, but Christian Church Homes plans to ask for it to be sent to private arbitration. A judge will consider the request at a hearing in early July.

Emily Green is a San Francisco Chronicle staff writer. Email: egreen@sfchronicle.com Twitter: emilytgreen