from the Wall Street Journal:

Churches Find End Is Nigh
The Number of Religious Facilities Unable to Pay Their Mortgage Is Surging

By SHELLY BANJO

ROSEVILLE, Calif.—Residential and commercial real-estate owners aren't the only ones losing their properties to foreclosure. The past few years have seen a rapid acceleration in the number of churches losing their sanctuaries because they can't pay the mortgage.

Just as homeowners borrowed too much or built too big during boom times, many churches did the same and now are struggling as their congregations shrink and collections fall owing to rising unemployment and a weak economy.

Since 2008, nearly 200 religious facilities have been foreclosed on by banks, up from eight during the previous two years and virtually none in the decade before that, according to real-estate services firm CoStar Group, Inc. Analysts and bankers say hundreds of additional churches face financial struggles so severe they could face foreclosure or bankruptcy in the near future.

"Churches are the next wave in this economic crisis," says Rev. Jesse L. Jackson Sr., president and founder of the Rainbow PUSH Coalition, a non-profit civil-rights group, who works with pastors around the country to help churches negotiate better terms with their bankers.

Religious denominations of all kinds have suffered in recent years as donations have declined, with many Catholic parishes closing and synagogues merging their congregations. But the property-financing problems have been concentrated among independent churches, which while seeking to expand lack a governing body to serve as a backstop to financial hardship.

"Religious organizations may be subject to the laws of God but they are also subject to the laws of economics," said Chris Macke, senior real-estate strategist at CoStar. Many troubled churches, he said, are in states such as California, Florida, Georgia and Michigan, which also have some of the highest home-foreclosures rates in the country.

In many cases, churches ran into trouble after borrowing to build bigger houses of worship needed to accommodate growing congregations in once-booming housing markets.

Pastors Rich and Lindy Oliver decided their Family Christian Center needed more space after their congregation rose from a few hundred in the early 1990s to 650 by 2002. The church borrowed $4.2 million and began building a new 1,000-person sanctuary on 11 acres in Orangevale, Calif., including classrooms and a space for adult learning.

Across the U.S., churches are losing their sanctuaries because they can't pay their mortgage debt. Some borrowed too much or built too big during boom times and now are struggling as congregations -- and collections -- shrink.

But when housing prices across California began tumbling in 2006, followed by a surge in unemployment and foreclosures, many congregants moved away, and those who were left reduced their tithing sharply. Meanwhile, the property, valued at $8.5 million in 2002 was appraised at just $2.5 million in 2008.

Stretched to the limit, the pastors stopped making payments. "I just told the bank to take it," Mr. Oliver said. "If you're a church with a piece of property upside down and no one will refinance the loan or lend you more money, there's not really another choice but to walk away."

Bankers and lenders typically are reluctant to "foreclose on God" and seek to work out deals with churches. But none proved possible in the Olivers' case.

These days, Mr. Oliver said his church, renamed The Family Church, was "doing what the rest of America is doing—we're cutting back and simplifying." In November, the Olivers raised $700,000—not nearly enough to rescue the previous church—from donations and personal loans from church members and used it to lease a former furniture store in a strip mall in Roseville, Calif.

Traditionally, lenders considered churches good risks because of the weekly cash flow generated by tithing, as well as the moral compulsion felt by most pastors to pay down debt.

Like many churches, Mr. Oliver used bond financing, not a straight mortgage, to fund construction. Historically, churches wanting to build turned to their governing bodies or to specialized lenders that originated fixed-rate 25-year to 30-year mortgages. During the real-estate boom,

But during the real-estate boom, regional and community banks attracted churches with lower rates on shorter-term loans. At the same time, some bond underwriters began offering churches more money up front if they issued so-called compound-interest bonds. In such cases, churches often paid nothing until the bonds came due years later, but then had to pay both the principal and accrued interest, which often doubled the amount they owed.

Many such bonds come due in the next few years. But with property values down and cash in short supply, many churches won't have the funds to payand will have trouble refinancing. "In 2011 and the next couple of years, we're going to see a big maturity wall hitting these churches," said Scott Rolfs, head of Wisconsin-based investment bank Ziegler and Co.'s Religion and Education practice.

Many churches have also been upended by plain mortgages. Vineyard Christian Fellowship in Sacramento took out a $1.9 million mortgage to acquire a $2.3 million 18,000-square-foot property in 2004 that included a church and two retail spaces. Johnny Zapara, the pastor, had refinanced his own home for $400,000 to make a down payment and expected to pay most of the $17,000 monthly payment with income from retail tenants.

When one of the tenants went out of business and a new one couldn't be found, Vineyard subsidized the payments for two years. Eventually the church ran out of money. and couldn't refinance because the value of the property had fallen sharply.The lender foreclosed earlier this month.

"A building does not make a church. We will find a way to continue," Mr. Zapara said.