The Pitfalls of Borrowing Funds from Church Members
A Tennessee court issues a helpful ruling.

Whitehaven Community Baptist Church v. Halloway, 1997 WL 147529 (Tenn. App. 1997)

Background. A church purchased vacant land as the site of a new building. The church signed a $120,000 note, which was secured by a first mortgage on the land. When the church was unable to obtain a commercial loan to finance construction of the new building, it borrowed $100,000 from two of its members. The church signed a promissory note agreeing to pay the members in full within seven months, at ten percent interest. To secure this loan the church conveyed title to this property to the two members, subject to the first mortgage. With the financing in hand, construction of the new facility began. Unfortunately, the church defaulted on both loans. To protect against a foreclosure (and loss of its security) the two members paid off the church's debt under the first mortgage. By now the members had invested more than $200,000 in the project. A court later ruled that the two members were entitled to exclusive possession of the church property. The church appealed. A state appeals court agreed with the trial court's eviction of the church from the property.

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Posted: June 1, 1997
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