Reliance Trust Company of Atlanta now is responsible for managing the fund, liquidating its assets and making distributions to investors.
As of March 31 about 29 percent, or $24,933,216, of the outstanding principal balance of the loans in the fund's portfolio were more than 90 days past due and classified as "non-current or on non-accrual status." Foreclosures total $10,688,631, or 12.5 percent of the fund.
Philip W. Kell, president of the California Baptist Foundation, noted Reliance has "agreed to allow the foundation to serve as the sub-servicer of the fund." He said the foundation would continue working with churches that have loans with the CLF.
Kell said many investors "are struggling to make ends meet financially as a result of this default," and said the foundation "is committed to doing everything we can to maximize the value of the fund in every way possible such as helping churches raise additional funds, identifying alternate financing solutions or creating payment plans to avoid foreclosure, which is certainly our goal."
"At the same time, we do not expect that investors will realize 100 percent of their investment or accrued interest, based on the current loan portfolio," he stated.
Kell was quick to note that the liquidation of the CLF "does not jeopardize the California Baptist Foundation." He explained that the $85.8 million CLF is an investment fund that has been operated by the foundation since 1996 and has always been a stand-alone fund. The money received from investors has been used to make loans to churches and purchase church bonds and other similar types of investments.
He explained that as payments are received they will go into an account controlled by Reliance.
Kell further noted the arrangement with Reliance would "benefit investors" in the following ways:
-- The foundation still maintains a working relationship with most churches in the CLF and is already working with their decision-makers.
-- Since the foundation already is involved with these churches, there will be no lag-time associated with a new service provider getting up to speed on the situation, which should result in more expedient distributions to investors.
-- With the foundation's assistance, Reliance can liquidate the fund in a more cost-sensitive and timely manner than would be possible with a new servicer or a law firm that would normally be engaged in this situation.
-- The foundation is committed to working with Reliance to ensure accurate and timely communication regarding the status of the CLF, including investor meetings or conference calls, and regular written updates.
"We also are committed to the investors receiving distributions as soon as reasonably possible," Kell said.
He added that since no new certificates are being sold and no new loans are being made, every current investor will receive a pro rata share of each distribution from the fund. That will happen when there is cash in the fund made possible by refinancing loans and selling properties.
"These are difficult tasks in the current economy," Kell stressed. "We covet the prayers of investors, California Southern Baptists and our Southern Baptist family at large in the process of refinancing loans and selling properties to maximize distributions to investors."
In late December, investors in the loan fund received letters informing them that the CLF "did not meet maturity obligations to certain investors on November 15, 2010, and the Fund expects this will also be the case for obligations that come due in January 2011."
Kell, who has spoken candidly about the situation, says it is akin to what has happened nationally to the housing market related to foreclosures.
He explained, "The confluence of the economic downturn, record unemployment, a significant decrease in church giving and the overall credit crisis are factors that have created these unprecedented conditions in the church finance market.
"In the past we've had a few churches that were late in making payments. In fact, church loan foreclosures were extremely rare prior to the current downturn but that has obviously changed."
The foundation has not been unscathed through this time of economic turmoil. In 2008 when the economy began to falter, the foundation and its subsidiary, Strongtower Financial, had 104 employees. Today their combined employment force is 40 and most of those have taken double-digit percentage decreases in salary and given up contributions for retirement. He added that he expects additional staff reductions as the organization adjusts to "current economic realities."
The California Baptist Foundation is an agency of California Southern Baptist Convention. The foundation, founded in 1952, serves as the trust agency for Southern Baptists in the Golden State. Dollars under management in trusts, endowments and managed funds total more than $101 million and continue to grow, Kell said.
Terry Barone is editor of the California Southern Baptist (www.csbc.com/csb), newsjournal of the California Southern Baptist Convention.
Copyright (c) 2011 Southern Baptist Convention, Baptist Press www.BPNews.net