Local megachurch navigates precarious path

Munster Community, Indiana/February 17, 2013

Munster - While the Family Christian Center was spending millions of dollars annually on leadership compensation, travel, meals and jet fuel, it was falling behind on its mortgage payments and racking up a list of past-due bills, a Times investigation found.

Five properties owned by the megachurch were sold last year in the Lake County treasurer's tax sale because of unpaid property taxes, though Family Christian Center later reclaimed four of them, county records show.

Family Christian Center's financial situation grew so precarious, it agreed to turn all its money and financial records over to a court-appointed administrator in 2012.

"When I saw some of the expenditures being made in this church when there was a mortgage not being paid, I was astounded," Lake Superior Court Judge Diane Kavadias Schneider told attorneys during a Dec. 4 hearing relating to a California-based credit union's attempt to foreclose on the church.

At the time the mortgage foreclosure case started in 2011, Family Christian Center had been bringing in about $10 million per year and had a $98,000 monthly mortgage payment, a transcript of the Dec. 4, 2012, hearing states.

Outreach Magazine ranked Family Christian Center the 15th largest church in the country in 2011. It currently has an average weekly attendance of 15,235, according to figures provided by the church.

The Times is unable to provide a complete picture of the church and its leaders' finances. Family Christian Center's spokesman, Roy Dominguez, an attorney and former Lake County sheriff, declined to speak publicly about its situation. Few public records are available, and the church's recent mortgage foreclosure case was sealed by the judge.

However, the transcript of a recent court hearing, county documents and records generated by an affiliated nonprofit organization offer a glimpse of how the Family Christian Center's leaders spent its money as the church's financial woes mounted.

Making a living

Senior Pastor Steve Munsey received at least $519,514 in total compensation in 2011, the most recent year for which records were available, according to a return filed with the Internal Revenue Service by Refuge Productions Inc. His wife, Senior Pastor Melodye Munsey, made at least $201,607 in salary and benefits in 2011.

The Munseys' actual salaries could be higher, as they are connected to several other nonprofits and for-profit companies affiliated with Family Christian Center. Compensation information was not available for those entities.

Refuge Productions Inc. is Family Christian Center's nonprofit production company. It handles the center's elaborate stage productions and fine arts summer workshops, according to the church's website.

The Munseys' salaries and benefits listed in Refuge's 2011 IRS return were paid by Refuge and Christian Family World, IRS records state.

Records indicate Christian Family World is actually Family Christian World Inc., the nonprofit that operates Family Christian Center in Munster. The center itself is not required to file an annual return with the IRS because it is a church.

In total, Steve and Melodye Munsey received at least $2.9 million in total compensation from 2008 through 2011 from organizations connected to Family Christian Center, IRS records show.

In March 2008, the IRS filed a $167,870.43 federal tax lien against the couple - $85,656.53 for tax year 2005 and $82,213.90 for tax year 2006, county records show. A federal tax lien is the government’s legal claim against a person's property when he or she neglects or fails to pay a tax debt, according to the IRS website.

The Munseys paid the IRS the taxes and penalties they owed by June 2008.

IRS records show the couple also received a $183,934 loan from Refuge Productions in 2010 - the same year they took out a $2.3 million mortgage on their home in Briar Ridge subdivision in Schererville. The home, which has been put up for sale, has an assessed value of $550,800, according to the Lake County assessor's office.

The Munseys had not repaid the loan from Refuge Productions as of 2011, IRS records show.

Refuge Productions also owned a Mercedes that cost $80,611 and was part owner of an airplane that cost the nonprofit more than $100,000 per year in 2007 and 2009, IRS records show. The airplane was not clearly listed in records from 2008, 2010 or 2011.

The Munseys' son, Kent Munsey, made at least $914,886 in salary and benefits from 2008 through 2010 from Refuge, Family Christian Center and City Church Fellowship, IRS records show. City Church Fellowship operates City Church Chicago, which is led by Kent Munsey and his wife, Alli. The couple also work at Family Christian Center.

Kent Munsey's compensation was not listed in Refuge Productions' 2011 IRS return. His wife's salary is not listed in any of Refuge's IRS returns, because she is not an officer of the organization.

Kent Munsey told The Times he has never taken a salary from City Church Fellowship. He said he could not comment on anything related to Family Christian Center because of the pending mortgage foreclosure case, but noted a portion of his salary listed in Refuge's annual return comes from his speaking engagements and related product sales such as DVDs and CDs.

In April 2011, the IRS filed a $58,233.73 federal tax lien against Kent and Alli Munsey relating to tax year 2009, county records show. They paid the outstanding taxes and penalties by February 2012.

Through a church spokesman, Steve Munsey declined to be interviewed for this article. Last August, he told congregants that he, his wife and other staff members had taken significant salary reductions as a cost-cutting measure.

But during the years the Munseys' personal finances flourished, the fiscal health of the church they served faltered, according to a Times review of available records.

Strained coffers

Kavadias Schneider, the Lake Superior Court judge, told attorneys she was "a little shocked" when she read Family Christian Center's initial financial report, according to a transcript of the Dec. 4 court hearing in the mortgage foreclosure case.

"When I saw some of the expenditures being made in this church when there was a mortgage not being paid, I was astounded," she told attorneys during the hearing.

The church annually spent $3.5 million in leadership compensation and had a $900,000 budget for travel and meals, a $500,000 housing allowance and $500,000 for jet fuel and other expenditures, according to the transcript. In 2010, the church paid $1 million for property in Illinois, the transcript states.

Dominguez, spokesman and attorney for the church, declined to comment for The Times article, but he provided the media company with a lengthy list of charitable efforts undertaken by Family Christian Center in 2012.

Those efforts include Operation Care, which provided more than 23,000 families with food and toys; the hospital and prison ministries, where church officials regularly visited 38 local nursing homes and hospitals and visited more than 1,500 inmates at five nearby prisons; and World Missions Department, which supports missionaries in places such as India, China, Uganda and Central America, according to the list Dominguez provided.

Family Christian Center also spent large amounts of money relating to a three-year federal investigation, Steve Munsey told his congregation in August 2012.

Dominguez previously said the investigation was conducted by the IRS and other federal agencies after a complaint was filed against Family Christian Center. He did not give details of the complaint.

Dominguez previously said the church hired a law firm specializing in tax work as well as certified public accountants to work on its behalf and turned over about 90,000 documents.

No charges have been filed as a result of the investigation. However, the IRS has filed a series of federal tax liens against Family Christian Center totaling $623,132, according to the Lake County recorder's office.

The first lien, which the IRS filed in 2008, cost the church $569,342 in taxes and penalties. The church paid the money it owed the IRS by August 2010.

In 2012, the IRS filed two more tax liens against Family Christian Center - $17,774 relating to tax year 2010 and $36,016 for the period between Sept. 30, 2010, and March 31, 2012, according to the Lake County recorder's office. The church had not paid those taxes and penalties as of Friday, county records state.

An internal audit also revealed the church had failed to pay some state payroll taxes, which church officials reported to the state, Munsey told his congregation in August.

At the same time, officials at Family Christian Center fell behind in the church's mortgage payments and failed to pay some vendors, the court transcript from Dec. 4 shows.

The church went through several modifications with its current mortgage lender, Evangelical Christian Credit Union, before the California-based credit union filed a foreclosure case in 2011, according to records from the Lake County recorder's office and Lake Superior Court.

Credit union spokesman Jac La Tour said he could not comment on the foreclosure proceedings. Attorney Carl Greci, who is representing the credit union in the proceedings, did not return calls from The Times seeking comment.

In March 2012, the church agreed to have its financial operations taken over by an appointed financial administrator, Steven Baer, of Rally Capital Services LLC, based in Chicago, according to court records obtained by The Times.

"Rally offers financial, administrative and operational management advisory services to under-performing and distressed companies in and out of bankruptcy," according to its website.

Steve Munsey retained control of Family Christian Center's worship and ministries, according to the stipulated and agreed Lake Superior Court order dated March 30, 2012.

Family Christian Center agreed to turn over all its money and financial records to Rally, which maintains money and records on the church's behalf, court records show. Church officials and the appointed administrator were required to collaborate on developing a cash operating budget subject to the administrator's approval, according to the agreement.

The financial administrator, Baer, told Judge Kavadias Schneider the budget they created should address the church's past-due accounts payable, the Dec. 4 court transcript shows.

'Precarious position'

Family Christian Center appears to have owed at least $550,000 in verified past due bills as of Dec. 4, according to the court transcript. Baer said the church was in a "very precarious position" with "a couple of critical vendors," the court transcript shows.

Baer also said Family Christian Center had not paid property taxes for two or three years on five townhomes it owned. Family Christian Center does not pay property taxes on the worship center because it is a church.

Baer recommended the townhomes be put up for sale and advised the church to get out of the real estate business.

"They're so deep that we couldn't possibly find the funds to correct the tax situation, which is why we recommend walking away (from the townhomes)," Baer said during the court hearing.

He declined to comment for The Times' article.

Lake County Treasurer John Petalas said five properties owned by the church were sold Aug. 27, 2012, in the treasurer's tax sale. He said Family Christian Center's attorney, Dominguez, came into his office before that date, but the church didn't have enough money to get on a payment plan to avoid the tax sale.

Four of the properties were purchased by SMK Group LLC, based in Hammond, according to the treasurer's office. The fifth was purchased by Carl Spackler LLC, in South Bend.

Since then, Family Christian Center has redeemed four of the five properties it lost in the tax sale, Petalas said. To do so, the church had to pay Lake County all its back taxes and pay the buyer the amount for which the property was purchased plus 10 percent interest, Petalas said.

Attorney Dominguez told Judge Kavadias Schneider the properties were used by visiting pastors of the church. The judge told Dominguez that Family Christian Center no longer could afford the townhomes, according the the Dec. 4 court transcript.

Moving forward

Baer told the judge he believes Family Christian Center's current budget is "workable."

Family Christian Center brings in about $140,000 per week, Baer told the judge on Dec. 4. That amounts to roughly $7.3 million per year.

He said the church puts money aside each week toward paying its now $72,000 monthly mortgage payment to Evangelical Christian Credit Union. The rest of the money is used for other items in the budget, according to the court transcript.

It is unclear, based on available information, how much Family Christian Center owes on its mortgage.

A mortgage modification for the church filed in 2009 increased the outstanding principal at that time to about $12.3 million, Lake County recorder's office records show. A subsequent modification filed in 2010 did not list the amount owed.

The worship center is assessed at $10.4 million, Lake County assessor's records show.

Although there is a budget in place for Family Christian Center, officials connected to the mortgage foreclosure case have struggled to agree on how the church's financial affairs should be handled moving forward, according to a transcript of the Dec. 4 court hearing.

During the hearing, Dominguez said officials at Family Christian Center are entitled to regain control of their own affairs. He asked the judge to withdraw the previous court order agreeing to an appointed financial administrator and to return control of the church's finances to church officials, the transcript shows.

Dominguez told the judge the church paid nearly $350,000 to Rally Capital Services, where Baer works, between last April and the Dec. 4 hearing.

"This is a prime example where the cure is killing the patient," Dominguez told the judge. "We cannot afford that."

Baer agreed the fees were unsustainable, but he said the fees are the result of clashes over the budget.

"There's superficial cooperation, but it's grudging," Baer told the judge on Dec. 4. "It's reluctant. There's a lot of tension. It's become very difficult. We've tried very hard to listen to accommodate church leadership."

Baer said he and church officials could not agree on the disclosure of financial information from Refuge Productions and City Church Fellowship, which are separate entities whose operations are intertwined with the church.

The IRS revoked City Church's tax-exempt status on May 15, 2010, because it failed to file tax returns for three consecutive years, IRS and Guidestar records show. The church, led by Kent and Alli Munsey, had not been reinstated as of Friday, according to an official at the IRS.

City Church's executive director, Kevin Ernzen, said the revocation was the result of a coding error made by the IRS. Churches typically are not required to file annual returns with the IRS. Ernzen provided The Times with documentation showing attorneys are working with the IRS to resolve the issue.

Refuge Productions still is a tax-exempt organization, IRS records show. However, the IRS did file an $84,974.59 federal tax lien against the nonprofit in 2007. It was paid off by May 4, 2009.

Baer said Refuge Productions collects money during the productions it holds at Family Christian Center but does not give the money to Rally Capital Services. At the same time, Rally had paid bills submitted by Refuge, including a bill for feed for animals used in plays at the church, court records show.

Baer said he'd like to see Refuge's books and records to make sure church funds aren't being diverted into the nonprofit.

Dominguez argued Refuge and City Church's finances are outside the scope of the appointed financial administrator, because they are separate entities.

Refuge Production's 2011 IRS return shows a series of loans made to and from Family Christian Center, City Church and two of Steve Munsey's for-profit companies, IRS records show.

Kent Munsey said he would be willing to show Baer the financial records for City Church but has never been asked to do so.

Judge Kavadias Schneider said the church only will pay expenses for productions in which it receives revenue, according to the Dec. 4 transcript. Otherwise, Refuge Productions is responsible for its own expenses, she said.

The judge said she will consider Family Christian Center's request to cancel the financial administrator agreement during the next hearing, scheduled for Feb. 22.

Times Staff Writer Keith Benman contributed to this report.

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