A 'solid' opportunity costs Eugene, Ore., couple their savings

Diane Dietz

Aug. 17, 2008 (McClatchy-Tribune Regional News delivered by Newstex) -- They missed the clues.

Jeff and Jacqueline Walston say several irregularities might have signaled an early warning that they'd sunk $350,000 -- their life savings -- into an ill-fated business venture.

Still, the Central Point couple paid more attention than some of the other 85 to 100 investors in Willamette Development Services.

The Walstons are in their 60s and retired, so they could take time, for example, to drive by one of WDS's earliest proposed projects, the Lebanon Airport Estates housing project.

They were puzzled to find the ground unbroken and no sign of construction.

The Walstons called WDS, saying "Look, we don't see any groundbreaking on this," Jacqueline recalled recently.

Company officials said they had trouble getting title to the land because of a death, she recalled. "They took money and stuck it into the Santa Clara (housing) project, which they just raved about. Because they made that transition so quickly, we didn't check on the Santa Clara project."

In hindsight, the company was all too quick with explanations, Jacqueline Walston said.

"We asked a lot of questions but they always had answers that wiped any doubt we had away," she said. "However, they never did give a downside and that should have been a red flag to us, because there's a downside any time you invest in anything."

With almost all of their money gone, the Walstons are thankful for small favors: Jeff is 65 and Jacqueline is 64, and they're still in good health and can continue to work.

But they've got big-time money worries since they met up with CEO Joe LaCoste and his Willamette Development Services.

On the company's advice, they took out a pair of exotic home mortgage loans -- including one on their formerly paid-in-full house -- and now they're stuck with monthly mortgage payments that are $200 a month higher than their Social Security checks.

The Walstons were introduced to WDS in spring 2006 through a friend. The friend spoke highly of the company's managers. And, when the couple met Joe LaCoste and the other managing members, they were impressed, Jacqueline said.

"They just seemed to have our best interest at heart," she said. "They made it look very lucrative to us. We thought, 'Wow, this is just what we need in our time of life.' We thought it was going to be great."

The Walstons were, themselves, people of an entrepreneurial bent. They had been living in Los Gatos, Calif., where she was a massage therapist and he was a handyman. Planning for their retirement, they looked for a community with a lower cost of living. They fell in love with Southern Oregon and moved to Central Point.

They bought their new home and owned it free and clear. They had a mutual fund they had invested in for decades that provided monthly interest payments. WDS principals Joe LaCoste and Craig Sweet -- through their Pac First Mortgage company -- arranged second mortgages for some of the WDS investors, including the Walstons, according to attorneys representing the investors.

"What they taught us was to operate and think like a bank, where you use other people's money to make money," Jacqueline said.

The loan that the Walstons took out with their house as collateral is a negative amortization loan.

Negative ARMS offer low monthly payments that are below what is needed to progress toward loan payoff. The difference between what the couple is paying, and what is needed to pay off the loan, is added to the unpaid balance of the loan.

It's a cheap way to get hold of a house's equity for a limited time, but the end result for the borrower is that, after months of payments, he ends up owing more than he did to begin with.

"We thought it was going to be a two-year plan," Jacqueline said.

"They told us: 'It would be a good thing for you and a lot of people are doing it. We're a solid company,' " Walston recalls. "They seemed like they had a pretty good reputation as well as some experience, so we went ahead and got a loan."

The couple invested $200,000 in the company's Santa Clara project in Eugene and $75,000 into the Fisherman's Wharf project in Newport. Then Jeff took an additional $75,000 out of his individual retirement account for Fisherman's Wharf, according to court records.

"We're not the most sophisticated people in the world. We realize that, so we take responsibility for signing on the bottom line," Jacqueline said. "But we really did feel like they were solid."

At first things were great, Jacqueline said. For more than 1 1/2 years the couple received the promised $3,000 a month in interest payments, Then, in November, the money stopped coming. And still the Walstons hoped for the best.

"They answered our questions and talked to us and said they were doing everything they could. That strung us along for a while. Eventually we began to see: This is not right."

By March, they realized that WDS was collapsing and they sought an attorney specializing in securities fraud. Now the couple are among 50 investors who've joined lawsuits against LaCoste filed in June in Multnomah and Linn counties.

It's unclear who has control of WDS assets. Calls to the company have gone unanswered. The voice mail message box is full.

Secured lenders on some of the WDS properties have foreclosed, sold the property and then taken the proceeds to satisfy their loans. Where houses were partially built, subcontractors continue to file liens against the properties.

Attorneys representing the investors offer no guarantees that they'll be able to claw the investor money back out of the WDS deals.

"It's too early to say," said Portland attorney Bob McGaughey, who represents about half the investors, including the Walstons.

The state or federal government should appoint a receiver to sort through the finances of WDS and its satellite limited liability companies and recover assets on behalf of investors, said Portland attorney Michael Esler, who represents another group of investors.

"A receiver can cut through the red tape," he said.

Today, the Walstons are hustling to pay their bills. They get $1,700 per month in Social Security, but they must pay $1,900 a month to service the two negative amortization loans they took out under WDS tutelage, Jacqueline said.

So the couple has started a small moving business that helps seniors relocate into assisted living or retirement centers.

The future is scary, Jacqueline said.

"We're fit, but we don't have a lot of productive years left," she said. "It gives me a big sick feeling in my heart and my stomach. It's been quite a long ride. We're just hoping for the best."

Newstex ID: KRTB-0061-27515045