Churches see surge in foreclosures MORTGAGE MELTDOWN Religious properties facing foreclosure more than ever before

Members of the congregation sing and clap at mass on Sunday, March 18, 2012. Church Without Walls is located in Hunter's Point, where they hope to remain. The church faces a foreclosures after being repossessed by the bank. less Members of the congregation sing and clap at mass on Sunday, March 18, 2012. Church Without Walls is located in Hunter's Point, where they hope to remain. The church faces a foreclosures after being ... more Photo: Sean Culligan, The Chronicle Photo: Sean Culligan, The Chronicle Image 1 of / 12 Caption Close Churches see surge in foreclosures 1 / 12 Back to Gallery

Standing in front of windows overlooking the San Francisco Bay, an exuberant choir clapped and danced as it sang "He Is Lord" last Sunday at Without Walls International Christian Fellowship in Hunters Point.

"We are asking for deliverance in this house," said the Rev. Henry Davis, speaking from the pulpit in the modest storefront church as about 80 congregants, ranging from lively toddlers to elderly ladies, murmured agreement. "This is our house; this is holy ground."

But the church, like a growing number of religious fellowships around the country, may lose its house of worship to foreclosure.

"More and more churches are facing this problem," said the Rev. Jesse Jackson Sr., founder of the Rainbow PUSH Coalition civil rights advocacy group. Its 1,000 Churches Connected Project acts as a mediator between struggling churches and their lenders. Program Director Axel Adams said he's talked to about 40 churches in California and many more nationwide that are straining to make property payments.

"Churches are full of members who lost jobs, who face home foreclosures themselves," Jackson said. "Church is their place of refuge. If the refuge closes, they have no place to go."

Financial issues span denominations but often are most acute for small to mid-size evangelical churches that are relatively new and are located in areas hard hit by the economic downturn.

They are not unlike struggling homeowners: When the economy was booming, some churches took on extra debt to expand, rehabilitate or move to larger spaces. Risky lending fueled the situation.

"Some aggressive banks raised the maximum they would lend, so churches became overleveraged just as consumers were," said Dan Mikes, who oversees religious-institution lending at Bank of the West in San Ramon. "In prior economic downturns, we did not see church foreclosures. Historically it's just never happened."

Downturn costs churches

Once the recession hit, many cash-strapped parishioners moved or reduced their contributions, so church incomes were cut. At the same time, the real estate downturn meant religious properties were worth less, making them harder to refinance.

That's what happened at Antioch Church Family, which bought a $3.5 million property in 2007.

"The church was growing and we didn't have enough room," said the Rev. R. Mario Howell. "We found a larger building that also had a six-unit apartment building and a four-bedroom house to provide housing for low-income families. With the bigger space, we could do food programs and community meetings."

At first, things worked out well, even though the monthly payments were $23,000.

"We never missed a payment until 2009, when the economic situation began to change," Howell said.

The lender gave it a forbearance agreement for 18 months, but after that, a $3.2 million balloon payment was due.

"The property value was down to $1.7 million so we could not refinance," he said. The lender started foreclosure proceedings in March 2011.

"The stress went through the entire church," Howell said. "We lost a lot of members, not knowing if we could stay there. As a pastor, I felt like I let them down. We took on this (bigger building) following the vision of the Lord. When things started happening, I found myself having trouble preaching on Sunday. I didn't want to talk about money all the time, I needed to talk about faith and hope."

In the fall, Wesleyan Investment Foundation, an Indiana nonprofit whose mission is to provide financial resources to local churches, lent the congregation the money to buy back the main church building at its current, lower value in a transaction similar to a short sale. The church lost the housing and its older church building. The monthly payment is now $7,300, about a third of its payments under the old loan.

Church commercial loans are often structured as short-term notes that must be refinanced after, say, five years.

Hundreds refinanced

Wesleyan CEO Craig Dunn said the fund, besides lending to about 10 churches that were facing foreclosure, has refinanced hundreds of churches in the past three years "that were refused continued financing by their current lenders."

Howell has been in the forefront of campaigns that draw religious leaders to advocate on behalf of struggling homeowners.

"As a pastor, I've seen people lose hope; lose their faith to the point that they didn't know what to do," he said. "This economic situation, because it hurts homeowners, it hurts the church. If families have to move and leave their homes, they leave their churches. You have a lot of churches in foreclosure all over the country because of this."

Real estate service CoStar said this month that church foreclosures nationwide are surging with 270 bank sales of church properties since 2010 compared with just a handful in earlier years. That's a small fraction of the nation's 335,000 churches, but CoStar described it as a historic high.

Still, its report might understate the issue.

ForeclosureRadar, which tracks California foreclosure events, found that more than 800 religious properties in the state were somewhere in the foreclosure process from 2006 to the present. That includes 133 that were sold to a bank or third party in a foreclosure auction, 582 that received delinquency notices and 119 that had foreclosure auctions canceled.

Within the past three months, 14 religious properties statewide were foreclosed upon by a bank or third party, 26 received delinquency notices, two had auctions canceled and 12 have auctions pending, ForeclosureRadar said.

Most of those struggling properties were in Southern California, but a number of Bay Area congregations were represented.

Real estate service DataQuick shows that 40 Bay Area religious properties received default notices since 2009, and 13 of them were foreclosed upon.

San Francisco's Without Walls is among those foreclosed upon.

Church leaders are suing to overturn the foreclosure because they said they weren't notified of the sale in advance, and that they were making payments on time under a forbearance agreement.

The previous pastor and his wife bought the Hunters Point building in April 2007 for $800,000 at a sky-high 12 percent interest. They soon fell behind and received a notice of default in December 2007. A notice of trustee sale (the last step before foreclosure) was filed in March 2011, but the sale was put on hold while they were making payments under the forbearance agreement, according to the lawsuit.

Church leaders said the 2011 forbearance was supposed to last until November, so they were surprised to find out that the lenders had repossessed the building for $100,000 at a courthouse-steps auction in early September. Five months after the foreclosure, their August mortgage payment was returned to them, uncashed.

"To wait four years to foreclose (after filing a notice of default) is really strange; I've never seen it before," said Tiffany R. Norman of TRN Law Associates, who is representing the church. "If they had had notice, they could have gone to the trustee sale and bought the property."

The church has lined up financing from Wesleyan Investment Foundation - the same nonprofit that lent to Antioch Church Family - to buy the property but said the lenders rejected its offers as being too low.

For sale as warehouse

The property is listed for sale at $599,000; the real estate listing describes it as a warehouse building.

The lender, Coast Capital Income Fund, has filed an unlawful detainer motion to evict the congregation. It was heard in court on Friday with 30 parishioners attending the hearing, and the eviction proceeding is continuing. Norman said she hopes to get the cases consolidated and heard in state court.

Coast Capital's attorney did not respond to requests for comment.

The pastors and other church leaders said the location works well for programs that teach job skills to young people, help ex-offenders with re-entry, and work with substance abusers.

"But I can't keep telling people to come when we don't know if there will be a lock on the door," Davis said.

During last Sunday's service, congregants' cars were double-parked up and down the industrial section of Innes Avenue where the church stands near other run-down buildings. In the vestibule, Sandra Bailey and Mary Caston readied chafing dishes of chicken and rice for lunch.

"We'd be homeless, wandering in the wilderness if we didn't have our church home," said Caston, an accountant who lives in San Francisco. "The streets are cold. We need a place to worship so we can stay together."