The Trustees of the Presbytery of Elizabeth

Amendment of the Presbytery of Elizabeth Administrative Manual for the Purpose of Consolidating and Clarifying Existing Provisions Related to Ministerial Housing Adopted by the Trustees at its Meeting on September 7, 2005 and Presented for a First Reading at the Stated Meeting of the Presbytery on September 27, 2005.

Background: The Presbytery of Elizabeth has adopted three documents related to the provision of ministerial housing: (1) Procedure for Sale of a Church Manse (“Sale Procedure”)-- Adopted June 25, 1996, (pages 43-44 of the Presbytery Administrative Manual), (2) Procedure Governing the Loan of Congregation Funds to a Pastor (“Loan Procedure”) -- Adopted January 24, 1998 (page 51 of the Presbytery Administrative Manual), and (3) Resolution Regarding Ministerial Housing (“Housing Resolution”) -- Adopted by the Presbytery in 2003. Reflecting the Trustees experience in dealing with Ministerial Housing Matters over several years, this Amendment to the Presbytery Administrative Manual consolidates, and in certain respects clarifies, these documents, but does not reflect any substantive changes to the policies of the Presbytery regarding ministerial housing.

Sessions are responsible for recommending ministerial housing provisions to their Congregations and, after engaging in appropriate study and consideration and receiving approval of the Presbytery Trustees, may recommend to the Congregation the sale of a Manse, with the consummation of the sale contingent on a review of the transaction by the Committee on Ministry and the Trustees and approval of the Presbytery. The proceeds of the sale are “to be held in escrow, the income from which is to be used for ministerial housing.” (Sale Procedure) Thus, the proceeds of the sale of a manse shall be invested to produce income which may be used only for ministerial housing purposes; possible investments include:

(a) commercial investments consistent with the Congregation’s policy on the investment of funds (the income being dividends, interest, capital appreciation),

(b) a contribution to the purchase of ministerial housing through an equity sharing arrangement (the income being a share of the appreciation in the value of the property when it is ultimately sold see the Resolution), and

(c) an interest-bearing second mortgage loan to the Pastor to facilitate the purchase of housing (the income being the interest on the loan).

The Committee on Ministry is obliged to conduct a thorough review of the housing arrangements agreed to among the candidate Pastor, the Pastor Nominating Committee ("PNC"), and the Session prior to the candidate Pastor's candidate sermon. Only in the event that the Congregation will provide financial assistance to the candidate Pastor for the purpose of ministerial housing, the following information related to such assistance should be included in the Terms of Call and reviewed by a representative of the Trustees and the COM liaison to the PNC prior to being presented to the Congregation as a part of the Terms of Call (Housing Resolution):

In the case of an equity sharing arrangement:

(a) the budget for the purchase of housing, including the amounts to be contributed by the Congregation and the Pastor,

(b) the fractional share of the ownership of the Congregation and Pastor,

(c) the responsibility for the expenses of routine maintenance and capital improvements,

(d) responsibility for the payment of taxes,

(e) a description of the process for approving capital improvements, and

(f) the procedures to be followed in the event of the dissolution of the pastoral relationship.

In the case of either a second mortgage loan agreement with the Pastor or the Congregation providing funds to the Pastor for the Pastor’s contribution to an equity sharing arrangement (Loan Procedure):

(a) the amount and source of the funds that will be loaned to the candidate Pastor; 

(b) a budget for the purchase of a home must be established, specifying the amount to be provided by the Congregation and the amount to be provided by the candidate Pastor; 

(c)  the terms of the loan including (i) interest rate, (ii) amount and frequency of payments of interest and principal, (iii) the consequences of late payments, (iv)  the nature of the collateral (in this case, the second mortgage on the real property, and (v) arrangements for repayment of the loan in the event of the death or termination of employment of the Pastor or the sale of the collateral. 

In addition, the following, more general, provisions apply (Housing Resolution): 

(a)  the PNC and Session are jointly responsible for ensuring that the housing budget is affordable in light of the candidate Pastor's compensation package; 

(b)  because the equity sharing agreement or loan agreement involve the purchase of real property, the Congregation should engage an attorney to draft and provide other legal advice in connection with those agreements; 

(c) such agreements must be approved at meetings of the Congregation and Corporation; 

(d) all changes in ministerial housing arrangements must be reflected in revised Terms of Call and approved by the Congregation and Presbytery; and

(e) in the event that the Congregation will borrow the funds to be provided in connection with an equity sharing agreement or second mortgage loan agreement, the approval of the Presbytery is required for such borrowing. 

The following examples and commentary are provided for the purpose of illustrating the application of these consolidates procedures to ministerial housing arrangements:

Example #1: The purchase of a home by the Pastor for $300,000.00 financed by a commercially obtained first mortgage of $125,000.00 (an amount determined to be "affordable" in light of the Pastor's salary) and a contribution (analogous to a down payment) by the Church of $175,000.00  The Church takes back a second mortgage on the property requiring monthly payments reflecting the existing market-based finance charge.

Comment: In the event of any dissolution of the pastoral relationship, the home would be placed on the market and the principal balance on the second mortgage would be repaid to the church upon the closing of the sale of the property. In the event that the Pastor elects not to sell the home, the principal balance of the second mortgage loan would be repaid to the church in accordance with the terms of the second mortgage loan agreement. In this example, all of the benefits and risks of ownership of the home are with the Pastor.

 Example #2:” The Church purchases a home for $300,000.00 and in a Shared Equity Agreement executed in connection with the initial terms of call, transfers a minority share of the ownership of the home (for sake of easy arithmetic say 40%) to the pastor and the Church takes back an interest-bearing mortgage with an initial principal balance of $120,000.00. 

Comment: In the event that the pastoral relationship is terminated, the home would be sold and the proceeds of the sale would be distributed as follows:  (a) 60% to the congregation reflecting its ownership share and (b) 40% of the net proceeds less the outstanding principal balance on the mortgage to the Pastor.  Because the reduction in the principle balance of a lengthy mortgage during the early portion of the mortgage term is typically very small, the amount actually paid to the pastor (after subtracting the principal balance of the mortgage from the Pastor's share of the net proceeds of the sale) would be quite small -- and possibly even negative where the mortgage balance exceeds the net proceeds (due for example, to transaction expenses) -- in the event of an early dissolution of the pastoral relationship. 

The risks involved in an early termination would be limited to situations in which (a)  there has been a decline in the value of the property or (b) the dissolution occurs so quickly after the initial call that the transaction expenses (real estate fees, closing costs etc.) exceed any gain in the value of the property.  (It would be reasonable to apportion these risks between the Pastor and the Church through the negotiation of the Shared Equity Agreement.) The key to the second example working in the event of an early dissolution is that the Church does not make a gift of an equity share in the home, but rather sells that equity share to the Pastor through the mortgage arrangement.  

If the arrangement permits the Church to "buy out" the Pastor's interest by paying the Pastor a share of the appraised value home at the time of dissolution and the Church anticipates exercising that option, the Church is obliged to have cash on hand to buy the Pastor's share at the dissolution of the pastorate.  In this example, if after 20 years, the mortgage will have been repaid and potentially the value of the home doubled to $600,000.00.  In this case the Church, if it wished to retain ownership of the home, would need $240,000.00 (40% of 600,000.00) to buy out the Pastor's interest in the home.  If other funds are not available for this purpose, it would be advisable for the Church to establish a "sinking fund" into which the Church makes annual deposits reflecting (a) the reduction in the principal balance of the mortgage and (b) an estimate of the increase in the market value of the property multiplied by the Pastor’s equity share of the property.