For the last 15 years, the Diocese of New Jersey has essentially served as a mortgage lender, using a fully legal—if unusual—system that has allowed 20 of its closed churches to remain houses of worship while ensuring a revenue stream for some remnant congregations.
Citing financial management problems, Bishop Sally French has decided to phase out the practice. She announced on March 1 that diocesan staff had worked during the last several months with its 19 remaining debtor congregations, which include a Buddhist temple and a Conservative Jewish synagogue, to get them caught up on their mortgage payments.
The review, she said, netted over $1 million in payments in February. Much of the proceeds will be used to solve a different financial management problem French inherited upon becoming bishop in 2023: nearly $900,000 in fund imbalances in the diocesan accounts, created by the misdirection of funds under the oversight of the diocese’s former CFO, Phyllis Jones, who stepped down in May 2024.
“We have not always monitored these mortgages carefully. When I started as your bishop, we had nineteen of these mortgages. The majority were overdue on payments (some significantly), and there were two properties that had never made any mortgage payments,” French said.
Two of the 19 congregations raised funds to pay off the balance of their loans, which resulted in income of $1,008,149.18. One congregation that had never made a payment on its debt returned the property to the diocese, and 10 of the remaining 16 debtors are now current on their payments.
“The work here continues, but we are moving forward, and our financial picture is stronger. This is good news,” the bishop added.
Purchase-Money Mortgages
Diocesan chancellor Paul Ambos told TLC that the diocese has offered purchase-money mortgages, also known as seller financing, to the buyers of diocesan property since 2010. The titles for the properties were transferred to the buyer at the time of the sale, but purchasers make their payments to the diocese instead of a bank.
The arrangement is far less common than traditional mortgages, but is sometimes used when sellers wish to market their properties to buyers who would otherwise be unable to afford a market-value purchase price.
The Rt. Rev. George Councell (bishop from 2003 to 2013) was reluctant to close any churches, Ambos said. When the congregation of St. George’s Church in Helmetta, the only Protestant congregation in a tiny former mill town in the center of the state, voted to align with the Church of Nigeria-affiliated Convocation of Anglicans in North America (CANA), the diocese agreed to sell the parish its historic church, using a purchase-money mortgage.
The next year, the diocese set up a similar mortgage for a Coptic Orthodox congregation, which bought the former St. Michael’s Church in Piscataway. St. Michael’s had declined sharply after a state-highway realignment made it inaccessible to Rutgers University students who had been the focus of its ministry. St. Moses and Anba Abraam Orthodox Church thrives on the former St. Michael’s campus, which it would have found hard to purchase with conventional financing.
The practice expanded under Bishop William Stokes, who led the diocese from 201 to 2023. During his tenure, the diocese issued purchase-money mortgages to the buyers of 18 more closed churches.
“In almost all cases, sales were made to small congregations that would be unable to obtain bank financing. Taking back mortgages was designed to give the diocese an income stream from those properties that were otherwise not producing income,” Ambos said.
He said that all the former Episcopal churches had been sold to faith communities. “One was to a conservative Jewish congregation, two to a reformed Catholic denomination, one was to a Buddhist community, and various others, a couple of which had Spanish entity names. Most were congregationalist churches, including some more evangelical, Pentecostal, and Baptist churches.”
A Buyer’s Market for Churches
Becoming a mortgage lender may seem like an odd business decision for an Episcopal diocese, but it’s a buyer’s market for church property in New Jersey, especially when the seller prefers that the building remain a house of worship.
Like other parts of the Northeast, the state has seen serious declines in religious participation, but is full of churches built in more pious eras. Even after the 20 church closures of the last 15 years, the Diocese of New Jersey (which only covers about two-thirds of the small state’s geographic area) still has 141 congregations, the sixth-highest total among Episcopal dioceses.
Only 4.2 percent of New Jerseyans are mainline Protestants, according to 2020 U.S. census data, but 28.58 percent of the state’s religious congregations are mainline Protestant, many of them small and struggling. There’s no nationwide register for church closures, but the number is significant and growing in the state, especially in urban centers and rural communities, where church properties regularly come onto the market.
As the diocese has experienced in the last 15 years, closed mainline Protestant churches are often bought by new evangelical and Pentecostal congregations. But New Jersey doesn’t have very many evangelicals. It’s one of the most Catholic states (61.3% of religious adherents in the state, according to the 2020 census). Just over 5 percent of the state’s residents identify as evangelicals, which means relatively few congregations looking for new space.
Because New Jersey has the nation’s second-highest proportion of foreign-born residents (24.2% in 2023), it’s not surprising that many new congregations are composed primarily of immigrants, like the Coptic Orthodox church in Piscataway and the Spanish-speaking congregations that have bought other former Episcopal churches from the diocese.
Property values are also high in New Jersey, which has the nation’s seventh-highest median home prices, as of February 2024. This means that the fair market value of many closed churches is well beyond what many of these new congregations could afford, if not for the purchase-money mortgages the diocese has been offering.
Ann Fleming, Episcopal Church Building Fund’s vice president for development and operations, told TLC that she didn’t know of any other Episcopal dioceses that used seller financing to market their closed church buildings.
“Property sales are sometimes limited by zoning,” she said. “It’s often easier to sell to another church.”
Fleming added that she knew from her experience consulting in the neighboring Diocese of Newark that New Jersey has unusually complicated religious corporations law.
“It’s a little different because of the way property is owned. When the diocese was set up, special laws were put in place to govern the way the diocese can function as a non-profit,” she said.
“Typically, you want to offload the building quickly,” Fleming said, adding that insurance for vacant churches can be costly, and that they can become targets for vandalism and theft.
By helping buyers who otherwise couldn’t afford the properties, New Jersey’s purchase-money mortgage system prevented vacant buildings from remaining on the market for long periods of time, and made it more likely that they would eventually realize something closer to a fair market value from the sale.
Funds for Mission
The diocese’s system also had an incentive that encouraged congregations to close before they had completely exhausted their financial resources (which often leaves lots of deferred maintenance that lowers property value).
Though the property of closed churches reverts to diocesan control, when the closing congregation merged with another nearby Episcopal church, the diocese directed the purchaser’s mortgage payments to the new church, Ambos said.
“In other instances, funds from the sale of church properties have been allocated to neighboring vulnerable congregations as a way of ensuring ongoing financial support,” he added. The mortgage payments from some other churches were used for the diocese’s Mission Renewal Fund, which makes grants to congregations in financial distress and supports new mission efforts.
“The monies received from the mortgages have been used to support vulnerable congregations through grants and were not used to fund the operating budget of the diocese,” he said.
Ambos indicated that the diocese plans to handle the remaining 16 mortgages in the same manner, but added that “Bishop French does not intend to continue the practice of offering purchase-money mortgages for diocesan properties.”
French said in her March 1 announcement that a significant portion of the $1,008,149.18 the diocese received would also be used for mission purposes.
The Trustees of Church Property designated $236,461 of the amount to the Mission Renewal Fund. About a tenth of the proceeds will be used for the carrying costs of the closed mortgages and assistance to a struggling congregation. The trustees also allocated $200,000 to a new fund for future real estate and development expenses.
Resolving Financial Management Problems
The bulk of the proceeds—$464,115—will be used to restore the balances of designated funds, partially resolving a series of financial management problems that French brought to the attention of the diocese in February 2024, less than a year after assuming office.
She reported to the diocese then that an investigation had revealed “a number of areas where we have not maintained appropriate financial and administrative controls.” These included the failure of some congregations to receive the proceeds of mortgages held by the diocese.
“The situation is complex and, in some instances, longstanding, and action is required,” French said then. “These concerns have made our diocese vulnerable and must be addressed promptly, but I want to assure you that there is no indication of any financial malfeasance or fraud.”
Two months later, the diocese requested and received a $200,000 reduction in the funds owed to Episcopal Church Center for 2024. The “hardship waiver” was requested, she told Episcopal News Service, because a full understanding of the diocese’s financial situation “will require completing overdue diocesan audits, correcting historical errors in financial recordkeeping, and obtaining accurate information about church properties.”
The next month, the diocese’s long-serving CFO, Phyllis Jones, resigned her position. Jones was hired by Bishop George Councell in July 2010, at about the same time it issued its first purchase-money mortgage to St. George’s Anglican Church in Helmetta. According to her LinkedIn profile, Jones now serves as CFO of Rescue Mission of Trenton.
“One of our discoveries over the past year was that funds intended for specific purposes had been directed into the operating accounts of the diocese, where they were used to address needs and support congregations in difficulty,” French said in her March 1 report. “While the support was necessary, we used monies not authorized for that purpose and it created difficulties for both our finances and our ministries.”
The total amount of misdirected funds, she said, had been calculated at $891,000.38.
“With the allocation of $464,115.38, we have diminished this obligation significantly and we anticipate that future mortgage settlements will allow us to eliminate the remaining $426,885.00 obligation by the end of 2025,” she said.
Ambos told TLC that “the diocese is still resolving its financial problems. We are working on a plan to return to full payment of our diocesan asking as soon as possible. While we hope for a smaller amount of relief in 2025, we do not anticipate needing support in 2026.
“We look forward to resolving our financial challenges and returning to full support of the Episcopal Church budget as soon as possible.”
The Rev. Mark Michael is editor-in-chief of The Living Church. An Episcopal priest, he has reported widely on global Anglicanism, and also writes about church history, liturgy, and pastoral ministry.
