News and Opinion from Sisters, Oregon
News and Opinion from Sisters, Oregon
According to the claim, Pratt borrowed approximately $939,000 from Fought in November, 1993 at 12 percent interest to purchase commercial lots and build "Phase I" of an office building in Sisters.
As later amended to include accrued interest, payment on that loan totaled approximately $10,224 per month.
Also in November, 1993, Pratt borrowed about $598,000 from Fought at 12 percent interest to buy what Pratt called "the home of my dreams" in Bend's Drake Park.
Payments on that loan were $6,298 per month.
In 1994, Pratt sought to complete "Phase II" of his office building project in Sisters. He borrowed another $609,465 from Fought at 12 percent interest.
Payments on that loan were $6,462.71 per month.
Also in 1994, Pratt borrowed $45,375 to purchase two lots adjoining his office project in case he needed to provide additional parking. Payments on that loan totaled a little less than $500 per month.
On March 29, 1996 the estate of Joe Fought asked the Circuit Court for a judgment against Pratt for $2,303,696.86 plus interest totaling about $120,000 on the four loans from September and October 1995.
Pratt told The Nugget he met Fought in the winter of 1992. Pratt said he had no money at that time, having finally paid off debts from a divorce.
As a friendship developed, Pratt said Fought offered to lend him money.
Pratt said he wanted to buy an office building in Bend, where it would be easier to maintain joint custody of his children. Fought counseled him to by something bigger than what he needed for his own accounting practice, Pratt said, so that he could realize some rental income.
But Pratt could find nothing in Bend. "One thing led to another," Pratt said. He saw a sign on an attractive piece of property in Sisters, property that was owned by Joe Fought.
"Joe offered to sell me the property and build me a building," said Pratt.
In 1993 Pratt began research on what kind of building would make the best investment, he said.
Because changes in state Department of Environmental Quality regulations required more expensive drain fields, energy code requirements were higher, the City of Sisters had increased fees and the Americans with Disabilities Act required elevators, Pratt said they couldn't build a low-cost structure and still compete with older buildings that did not have to meet these requirements.
After market studies convinced them "the market was excellent" in 1992, with rents high and office space scarce, Pratt concluded the best option was to build a "high-end building."
Pratt said that they always anticipated that the 7,000-square-foot Phase I, constructed for about $100 per square foot, would be a loss. He went ahead with the 10,000-square-foot Phase II at about $60 per foot because they did not know the market for office space had contracted and "there were some things that made Phase II something to jump into. People wanted smaller spaces," Pratt said.
"Joe knew I had no money and said `Arthur, we will just let the interest accrue and you can start payments when Phase I and Phase II are complete,' " Pratt said.
"We always looked at my CPA practice as a way to subsidize negative cash flows. This was a 30-year plan. What Joe said was `let your business help you. Use your CPA business to help you fund real estate,' " Pratt said.
As to the home in Drake Park, Pratt said that Fought believed the $590,000 home "was a unique home and he felt it could keep its value."
Pratt figured he could afford the $6,000 per month house payments by "working an hour and a half more each day, plus one evening. And when my office building was full I wouldn't have to work any more" hours to make his house payments.
But then other commercial office projects were completed in Sisters, Pratt said. His fight with the City of Sisters over parking requirements cost him time and money. There was a glut of space, then demand and rental prices dropped.
Even though times were tough, Fought and Pratt had faith that he market would turn around and validate his investment, Pratt said.
But Joe Fought became ill, turning everything over to his attorneys, Pratt said. Fought died on October 7, 1995 at the age of 87. Pratt said he had little contact with Fought for almost the entire year preceding his death.
Pratt was unable to find tenants for his office building, and was unable to meet his payment obligations, though he said he was making payments on the Bend home.
A major client of his accounting practice told Pratt that he would have to go on a deferred payment schedule for his accounting fees.
Fought's attorneys were much less willing than Joe Fought to negotiate an extension, Pratt said. In August, 1995, Pratt said he was forced to sign a loan modification agreement that a default on any one of the loan agreements "would constitute a default on all notes, trust deeds and loan agreements," according to papers filed in court.
In the Fall of 1995, after paying nearly $300,000 in interest on Phase I and on his home, Pratt was unable to meet his payments which resulted in the foreclosure notice filed March 29.
The foreclosure notice requests that the properties be sold in a sheriff's sale and that if the proceeds are not sufficient to satisfy the judgment, Pratt be liable for the deficiency.
Pratt told The Nugget that he is negotiating with the estate and believes it is in the estate's interest to help him through "this tough time period.
"They can take this building and sell it for `x' bucks (less than is owed) or they can have Arthur in this building making payments," Pratt said.
Pratt said his accounting practice is very lucrative, that he has not accepted new clients in 11 of the last 12 years and he has a year-and-a-half back-log of work. He believes the commercial office market is beginning to turn around.
If negotiations fail then Pratt said he may be forced into a reorganization of his debts under a Chapter 11 bankruptcy. Pratt stressed that under such a bankruptcy he would still pay his bills "but pay them under a different flow stream."
He has until the end of this month to answer the foreclosure filing.
In the meantime, he has rented out a little less than 50 percent of his office building, although his asking price has dropped from about $1.50 per square foot to about $.50 per square foot for a year's lease.
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