Have You Been Involved With Church Bonds?
Dear Bob, Have you been involved with church bonds? I have inherited a bond that has gone into default. The trustee petitioned the court to allow a restructuring of the loan by transferring the debt to a third party. It seems that the bondholders will not receive the value owed on the bonds. Over a period of 15 to 30 years, the bondholders will receive some amount of their bond and interest, but not all. The trustee says this will be better than a foreclosure on the original debt. Is this a common practice? It seems to me the trustee gets all of his cost, and the bondholders do not.
This is a common practice for bonds in general and not specific to church bonds. The problem comes when the country, state, city, church, organization, etc., cannot repay the loan. At this point, one of two things could occur.
The bond could default, and no one gets anything or even a small percentage of their money back.
The entity could also go to the bondholders and restructure the debt. That is a fancy way of saying – you will not get what you have coming to you; however, something is better than nothing.
So, what about church bonds? A church will issue a bond and borrow money from its congregation and/or other investors and agree to pay back the money with a fixed interest payment over a period of time and then return the principal to the investor at the end of the investment period. It works really like any other bond.
The problem occurs when the congregation/investors invest in them with blind faith. They trust the pastor, so they trust the bonds. Even though you might feel led to invest, you don't want to skip the due diligence and ensure it is good stewardship for you and your family.
Remember, there is always fine print. It might be fine print that church leadership is overlooking or even ignoring. Unfortunately, you will probably never be privy to those conversations.
On the surface, loaning money to the church sounds like a great move. A congregation can get caught up in the spirit of things and, on blind faith, loan their money, unaware of the risks being taken.
In this environment, you just have to be especially careful. Remember that a church will often go to a bond deal because they cannot get traditional financing anywhere else. Don't just blindly trust because it originated in the church. Do the due diligence! Church and business don't always mix well!
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