First Union Baptist Church in the Bronx. (Photo: David Handschuh/NYLJ)

A historic African-American church in the Bronx secured a new lease on life as part of a settlement deal announced Monday that short-circuited upcoming litigation scheduled in the U.S. Court of Appeals for the Second Circuit.

The First Union Baptist Church has faced legal battles that stretched from state court to the federal appellate level over the past nine years, after foreclosure proceedings were commenced in state Supreme Court in the Bronx after the church missed a mortgage payment in 2010.

The settlement announced Monday forestalls an appeal proceeding in the Second Circuit over the undoing of a Chapter 11 settlement in federal bankruptcy court at the district level by former judge Katherine Forrest.

Attorneys for the church highlighted the details of the settlement itself: the ability for the church to continue to operate in its current location, along with a development deal to create 45 units of housing.

“This is a perfect example of collaborating to build sustainable communities while at the same time protecting those vital institutions that maintained stability during the turmoil of economic and social unrest,” Susan Chase, staff attorney with the Community Development Project at The Legal Aid Society, said in a statement. “The people in our communities should not be put on the auction block in the name of economic development when property values rise.”

The crux of the legal crisis for the church came after a 2015 late court-ordered payment as part of a bankruptcy agreement. The holder of the mortgage, TD Capital, immediately executed an option to convert ownership of the church property in accordance with a deed-in-lieu of foreclosure provision of the agreement.

The church's co-counsel of the Legal Aid Society and pro bono efforts by Kasowitz Benson Torres led to a reopening of its bankruptcy case and, ultimately, after a trial, a favorable decision in that court found TD Capital's attempt to record the deed was unenforceable under New York State law, voiding the move.

However, the bankruptcy decision was unwound by Forrest. The ruling by the district court led to the appeal. The church argued that Forrest incorrectly reviewed the bankruptcy decision for questions of law and fact, rather than for clear effort.

“In doing so, the District Court improperly substituted its own findings of fact for those of the Bankruptcy Court and ignored well-settled New York law in determining that the transfer of the Deed was not a mortgage, and that the Deed-in-Lieu Provision was not an impermissible penalty,” the church argued on appeal.

A few weeks before scheduled oral arguments, the parties alerted the Second Circuit that settlement talks were under way.

“Kasowitz Benson Torres is extremely gratified to have had the opportunity to help save First Union Baptist Church in a win-win resolution that will return the Church to a sound financial footing and also provide housing to 45 low-income New York residents and their families,” said Kasowitz Benson Torres partner David Abrams, who led the firm's efforts on behalf of the church.

Private attorneys Gary Ravert and Laleh Hawa represented TD Capital on appeal. Neither immediately responded to a request for comment.

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