Roxbury church gets slight reprieve in effort to stave off bank that loaned it money for failed project

A federal judge last week told a bankruptcy judge to reconsider an order that would require the Charles Street AME Church to pay OneUnited Bank the more than $3 million it borrowed for a community center that was never finished.

In his ruling, US District Court Judge Richard Stearns did not disagree with the logic used by a bankruptcy-court judge to conclude that the church owes the bank the money, but said that judge would have to provide a more detailed explanation for his conclusion.

The church, which dates to its 1839 founding on Charles Street on Beacon Hill, borrowed the money in 2006 after its leader, the Rev. Gregory Groover, had "a vision from God" to buy a long vacant Warren Street building and convert it into the Roxbury Renaissance Center.

But the contractor walked away when the church stopped paying it as costs escalated due to structural problems with the building, as a fundraising drive to complete the project faltered during the 2008 recession and a council of AME churches in the Northeast declined to step in to help.

The church defaulted on the loan, the bank sued and the church filed for bankruptcy two days before the bank was going to auction off the church building at a foreclosure sale.

In its bankruptcy filings, the church said it shouldn't be forced to repay the loan because the bank violated the state's consumer-protection laws. Essentially, the church said the bank should have known there was no way the church could repay the loan and that the loan was therefore fraudulent.

Last November, a judge in federal bankruptcy court in Boston agreed the bank should have been more careful in examining the project's finances, but also said the bank took steps to limit the financial risks to both sides and that the church never told the bank of key issues, such as that its fundraising drive was faltering, so there was no fraud. If anything, the bank tried to show the bank how risky the loan was by lending it far less than it had first sought, Judge Frank Bailey wrote:

By rejecting the Church’s request for underwriting the full Project, limiting the amount of the loan, and working with the Church to structure a more‐workable loan, the Bank enabled the Church to better understand the risks. I find that, from the date of the closing on the Construction Loan, the Church, especially through [its project manager], always fully understood the financial risks and hurdles that the Construction Loan and the Project presented. The Church understood these risks at least as well as the Bank did. In at least one important respect, the Church’s understanding was better than the Bank’s: the Church went into the loan closing with knowledge that its capital campaign was grossly underperforming.

The church appealed. In his ruling last week, Stearns noted the church did not dispute any of the facts in the case, or even try to press its original claim that the bank knew from the start the loan would fail. So the homework he set for the bankruptcy judge is to determine whether the bank showed "reckless disregard for facts which made it likely that the loan would fail."

Bankruptcy ruling, which has a history of the failed project, featuring appearances by Bain Capital and Bay State Banner Publisher Mel Miller (700k PDF)
Stearns's ruling (290k PDF)