Bob Praegitzer is a man who takes big risks, whether changing careers or conducting day-to-day business. Recently, his approach backfired.
In 1981, Praegitzer set out to build a plant for his company, Praegitzer Industries, a manufacturer of printed circuit boards. To finance the plant, he personally took out a five-year, $800,000 mortgage at 16 3/4% from Family Federal Savings & Loan in Dallas, Ore. Two years later, he wanted additional financing on the property. That, the bank said, would require a new mortgage to replace the old one. And because the old one was thus being terminated, Praegitzer would have to pay a $50,00 prepayment penalty.
Praegitzer devised a risky strategy to avoid the penalty. He would stop payments on the mortgage. Then, on receipt of the bank's demand letter warning of imminent foreclosure, he would pay the outstanding balance and any interest due. Praegitzer figured that the bank's action, short of legal foreclosure, would save him the prepayment penalty.
Family Federal, though, regarded the technical default as a real default. The bank skipped the demand letter and instead filed a formal foreclosure action in the local courthouse.
When the foreclosure action hit the local newspaper, one reader who, by his own account, was "quite surprised and none too happy" was Bill Zurcher, vice-president of Rainier National Bank in Seattle. Rainier was one of several banks negotiating with Praegitzer Industries on an industrial revenue bond issue. Within days, the bank withdrew from the talks because of its concern over the circumstances surrounding the foreclosure action. "I think 'bizarre' is a good word for this -- it's not normal," says Zurcher.
Praegitzer insists that neither he nor his company is in financial difficulty, but he admits that his ploy to save $50,000 has boomeranged. "If I had known what a god-awful fuss was going to get made of all this, of course I wouldn't have done it," he says.