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Church files bankruptcy to stave off foreclosure
By adamg on Wed, 03/21/2012 - 8:00am
The Charles Street AME Church filed for Chapter 11 bankruptcy last night as a way to keep OneUnited Bank from holding a foreclosure auction on the church steps tomorrow.
In the filing, church pastor (and School Committee chairman) Gregory Groover accused the bank of aggressively going after the church - refusing to even talk to some benefactors who pledged to buy the loan in 2010 - because of its own financial problems. He recounted what happened after Steve Pagliuca and others made their offer:
The Bank reacted very unexpectedly. They did not even try to negotiate. Rather, within two hours of the end of the phone call, they sent me a one-page letter stating that they would not entertain any offers of less than full payment, and demanding that the Church immediately affirm that it would promptly pay the loan in full or else the Bank would immediately sue to collect. The Church did not have any such funds to pay the loan in full.
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Comments
I hate to say it, but the bank is in the right.
The bank didn't force the church to take out a mortgage for expansion purposes or for any purposes. The church is not abiding by the terms of the contract. The bank is simply protecting its interests. Do I think the bank is protecting its interests in the best way possible? No.
Why hate to say it? If you
Why hate to say it? If you buy a car, you expect the dealer to deliver you an entire car, not a car except for no windows or rear seat. A mortgage is a contract - not an allowance from Dad. When you repay your mortgage, the back then loans that money back out again to someone else. It's what banks do. And it's a good thing. And anything that interferes with that process is a bad thing. Not repaying your mortgage is a bad thing.
Not always a bad thing.
The bank could have made money off the church if they tried to cut a deal. If I'm the bank and the church can't pay, try to change the terms and have the church try to pay some more interest up front, or change the terms so the church has to pay .5% more on the interest. (if the church qualifies) Then everyone makes out.
We do have to remember that part of the reason we are in this whole mess is that people took out loans they should have known they couldn't pay.
Petes got it right
there's no morality in finance and business.
While the banks actions might make sense in a up market, it's a down market. Further, the church is doing what is now in it's interest, filing for bankruptcy.
So instead of working out a way to get most of the money back, the bank might now only get a very small percentage of the money back through bankruptcy court. Someone should have told them there's no such thing as moral slippery slopes in capitalism.
Easy to point fingers, but the problem was both sides being complicit in bad deals. Lenders got inflated balance sheets and buyers got nice appreciation in their assets. Until the house of cards fell over.
Agreed in theory
But now I'm curious to see what the offers were to buy the loan. If the benefactors were really trying to low-ball it, I can see why the bank wouldn't entertain the offer.
I do think the bank comes out looking bad in this situation, unless there's some forthcoming proof that the offers were ridiculously low.
My guess is the bank
just flat out refused to renegotiate. You don't usually get offers put out before even agreeing to negotiate in the first place, and pretty much ALL banks are not in the business of doing it.
It's game theory at work. Bank CEO's have much the same views as you and I; seeing refinancing as both a slippery slope and removing a moral hazard from loan contracts. Thing is, financially and for shareholders, they'd be much better off cutting deals to get back as much money as possible outside of bankruptcy.
Banks aren't making much money foreclosing on houses that sit and rot and get pennies on the dollar of investment when all is said and done. It's bad business.
I hate to say it because...
I actually have a heart. Can you believe it? I'm in the real estate business and feel bad whenever I see an owner facing financial difficulties. But I agree, the church agreed to the terms of the contract.
I never get this comment
"agreed to the terms of the contract"
The same contact outlines what happens if you default. We have laws on bankruptcy.
Loans are misjudged and go bad in the best of times. Businesses fail and go into bankruptcy all the time and restructure their debt. Hell, one presidential candidate did this exclusively, skimming millions off the top.
I understand the need to view it through a morality lens, but a bank is a corporation and is never doing the same. Viewing it that way on the other side is just bad economics.
Someone else "buying the loan"- doesn't that mean they get paid?
Are people lining up to purchase this real estate right now? Seems like they were better off negotiating- now with the bankruptcy their prospects for profit might get even worse.
Also, in terms of the mortgage, was it mostly straightforward or mostly scam? Could be the preachers and so forth got taken in by a sleazy, smiling salesman pretending to be just trying to help the community. I get the caveat emptor and all that, but at a certain point "fine print" is really just an attempt to deceive.
I highly doubt the church is a victim of a mortgage scam.
Especially in the world of commercial mortgages. The terms are generally uniform.
Fair enough
I'm not an expert on mortgages by a long shot. Don't even have one, for better or worse.