Jun. 24, 2003 - Washington Mutual Bank is foreclosing on Mark Hemstreet's $4 million Lake Oswego mansion, a move that raises new questions about the hotelier's financial situation. 

On April 2, Washington Mutual filed a notice of default against Hemstreet that claimed he hasn't paid the mortgage -- $24,651.97 a month -- since November 2002. 

Unless the Shilo Inns founder can pay the full $3.8 million he owes Washington Mutual, the Seattle-based bank intends to sell the 9,800-square-foot home on Aug. 8 in the lobby of the Clackamas County Courthouse. 

Hemstreet did not dispute that he's behind on the mortgage and said he is trying to sell the house for $4.3 million. 

"There's a current slowness in selling high-priced homes," Hemstreet said Monday. "I've reduced the price. I just want to sell the home and get Washington Mutual paid off." 

The pending foreclosure comes as Hemstreet seemed to be regaining solid financial footing after a rocky couple of years. He put 27 of his 46 hotels into Chapter 11 bankruptcy last year, blaming the chain's problems on the post-Sept. 11 tourism slump. Three lenders also sued Hemstreet personally, seeking repayment of more than $30 million. 

Hemstreet and Shilo have showed signs of a turnaround this year. The Shilo Inns emerged from bankruptcy in March, agreeing to pay creditors in full, according to Hemstreet. Shilo and its primary lender are working to complete documentation of their new loan agreement. 

Hemstreet also has settled a lawsuit filed by Bank of America, which was seeking repayment of more than $16 million, and has reached a tentative accord with Union Bank of California regarding a $4 million loan, he said. 

Hemstreet acknowledged that he and Shilo "suffered a temporary cash-flow crunch." He contended that Shilo deserves credit for agreeing to pay its creditors 100 percent of the money they're owed, a relatively uncommon occurrence among bankrupt companies. 

"No investors lost a dime on Mark Hemstreet," he said. "No employees lost their job because of Mark Hemstreet. And no creditor didn't get paid because of Mark Hemstreet. I'm pretty proud of that." 

Hemstreet's liquidity crunch and resulting legal battles with lenders have left him with a bitter taste. "These bankers . . . they're fair-weather friends," he said. "At the first sign of a storm, they abandon you." 

Hemstreet bought the Lake Oswego house at 1014 North Shore Road in 1994, three years after it was built. Built on a bluff behind a stoutly gated driveway, the sprawling, Mediterranean-style house features stunning views of the lake as well as beachfront and a stone boathouse. 

A property history report shows the house has been on the market on and off since 1999. The asking price has ranged from $6.9 million in July 1999 to $3.9 million earlier this spring to its current $4.3 million level. 

Earlier this month, Hemstreet hired Barbara Sue Seal, one of the Portland area's most prominent residential real estate agents, to sell the property. Hemstreet and Seal attributed the declining price tag in part to the house's failed synthetic stucco exterior. The house's exterior walls were made of a stuccolike textured material sold under the name Exterior Insulation Finish Systems (EIFS), which has proven disastrous for many homes and business owners nationwide. 

Hemstreet was forced to replace the house's exterior. Two Portland-based contractors hired to do the work, Superior Exteriors and Waco Scaffold & Equipment, filed construction liens against Hemstreet in December 2000 and January 2001 to collect the approximately $90,000 they said they were owed. Superior Exteriors also sued Hemstreet in Clackamas County Circuit Court. 

Waco eventually was paid and voluntarily released its lien. Superior, too, released its lien and settled the lawsuit. Terms of the settlement were confidential, said Tom Murphy, a Tigard attorney who represented Superior. 

Public documents indicate Hemstreet borrowed $3.8 million from Washington Mutual in January 2002, putting up the five-bedroom home as collateral. 

Washington Mutual claims in the default notice that Hemstreet first missed his mortgage payment in December and has not made a monthly payment since. Citing the missed payments, Washington Mutual has called the entire loan amount. 

Hemstreet can short-circuit the foreclosure process if he manages to pay off the loan before Washington Mutual takes possession. "Washington Mutual is working with me," Hemstreet said. "They know I'm spending a lot of money to market the house." 

Seal voiced confidence that she'll find a buyer for the house before August. 

"I just showed the house, and it went very well," Seal said Friday. "This (foreclosure) could be a nonevent." 

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