If I own a Church with equity in it, is it exempt?

[ab3]

Scenario: I am pastor of a church, it is a not-for-profit organization (corporation). There is a mortgage on the property with myself personally liable for the mortgage and the title is held by the not-for-profit entity. There is equity in it, to the tune of about $100k. I understand that I am over the exemption amounts since this is not a principal residence.

Question: I understand that bankruptcy looks through the corporate veil. Since this is a not-for-profit, and a church, do I run the risk of liquidation? I am located in Los Angeles btw.

Thanks for any advice.

[tobee43]

ab3 welcome to the board!

you may find this interesting reading from the Wall Street Journal:


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


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.

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,

http://online.wsj.com/article/SB10001424052748704115404576096151214141820.html?mod=WSJ_hp_mostpop_read

apparently, you are not alone, however, i would get a good atty for the church and see how exactly this will work for you with the non-profit statue and what exactly would be exempt under those provisions .

best of luck to you.

[HHM]

Interesting scenario.

Was the building owned by the non-profit company from the beginning. e.g. at time of purchase, was the title placed in the non-profit companies name; or did you initially own it and later transferred the property into the non-profit's name?

In any event, in most cases, so long as the non-profit company was validly created, and maintained properly, the non-profit and its assets are in no way at risk in your bankruptcy.

1st, non-profits don't have owners, they have directors.
2nd, when a non-profit liquidates, any proceeds must be used for the non-profit or distributed to another non-profit. Directors cannot take profits.

As such, as a director, you have no "asset interest" in the non-profit company, so neither does the trustee.

I have said this in another thread, but the issue with non-profits in a directors bankruptcy is whether the non-profit truly qualifies as a non-profit and has been properly maintained. What trustees will sometimes do is investigate the legitimacy of the non-profit. In your situation, you also have separation of church and state protection as well. So, the equity in the church (although I question whether there really is equity) is a non-issue.