Foreclosure was expected today on fire-destroyed mansion

Arson investigators are combing through the debris of a million-dollar riverfront estate that was engulfed by fire Thursday morning as lenders prepared to hold a foreclosure on the home.

Flames were visible to daybreak commuters along Interstate 90. Parts of the 10,000-square-foot brick and wood mansion – assessed at about $1.5 million – continued to smolder at nightfall.

No one was home and no one was injured in the fire, said Ron Sampert, Kootenai County fire chief.

The fire capped months of financial and legal tumult for the homeowners, said Leonard Wallace, who bought the home in 2002 with his wife, Pamela Wallace. Lender Deutsche Bank filed a foreclosure action against the Wallaces last year, and the family has turned to Bankruptcy Court to try to shield their assets at least twice. Their latest filing reflects some anxiety.

In a Jan. 23 filing, Pamela Wallace pleaded with the federal bankruptcy judge overseeing the case to postpone the pending foreclosure action.

“For me, (foreclosure) was one of the main reasons for filing in the bankruptcy court. I write this as a victim, my children are victims of an ongoing crime, this is my 911 call for help,” she wrote.

Her motion was denied. On Thursday, Leonard Wallace said, he was on the verge of settling the foreclosure action and keeping the home.

“I really believe we were close,” he said.

Arson investigators noted that police were called to the home on Wednesday night for a domestic dispute. The Wallaces were in a shouting match about flooding – possibly from the dishwasher. Leonard Wallace then turned off the water supply to the house to prevent water damage, said Post Falls police Capt. Greg McLean. No charges were filed.

Since the home is warmed by a radiant-heat system, the water shutoff forced the family out for the night.

Leonard Wallace said he spent the night at his workshop a few miles away, which has a small living quarters. Pamela Wallace stayed with friends, and their grown children, who were living at the home with the couple, spent the night in a motel.

The fire erupted hours later, engulfing the huge home. Wallace worried that it might have been started by one or two of the home’s gas fireplaces, which were left on, or perhaps from a gas water heater that he had installed.

In the days leading up to the fire, family members were seen taking valuables and furnishings from the home, according to multiple neighbors.

“Yes, we did move some stuff,” Leonard Wallace acknowledged. “We’ve been in a constant situation of change and conflict.”

McLean said police investigators interviewed the Wallaces at the scene of the fire, on the 1500 block of East Plaza Drive.

In 2009, Leonard Wallace turned his stake in the home – which sits next to the so-called “Amway House” – over to his wife as his business investments imploded. That same year he filed for bankruptcy, listing $24 million in assets and $20 million in liabilities.

That bankruptcy, however, was dismissed when the federal judge overseeing the case ruled that the Wallaces were spending money at a rapid clip without adequate documentation. The Wallaces reportedly claimed $71,000 in expenses in five months. About $48,000 of that was characterized as miscellaneous household expenses, according to court records.

The Wallaces have since filed for bankruptcy protection again, and Leonard Wallace said in an interview Thursday that he expects to prove he is a victim of a securities fraud. His lawyers have abandoned him and he is representing himself in the proceeding.

That claim centers on Wallace’s investment in a company called MagTrac. He said he bought an $800,000 initial stake in the company that had plans to develop a patented identification mechanism for dairy cattle. He kept investing money, he said.

The business relationship soured and Wallace sued to get his money out, claiming that he was the victim of a securities fraud.

Wallace lost in arbitration and then lost an appeal. His former businesses partners, with a $2.5 million judgment in hand, then moved against Wallace’s properties in other states, including California and Washington. In his bankruptcy filing, Wallace listed the judgment as his largest liability, now valued at $4.8 million.

Wallace is a self-made millionaire. He said he learned the trade of electrical engineering and used his technical and business skills to start and later sell two power supply companies in California that remain in business and employ thousands of people. He also ran the Big Velvet Ranch, a large and controversial elk farm, in the Bitterroot Valley south of Missoula.

Now 71, he has yet to retire and was developing the 900-acre Raspberry Ridge development near Post Falls before the recession brought many such projects to a halt.

The couple are current on taxes, according to the Kootenai County Treasurer’s Office.

A guest house adjacent to the main home that burned Thursday was lost to Mountain West Bank as part of a separate foreclosure action initiated last year. Court records indicate that Pamela Wallace’s mother had lived in the guest house.

Mountain West filed a complaint last year, accusing the Wallaces of trespassing on the guest house property and letting their dogs run across the grounds that had been common until the foreclosure.

One confrontation between a bank agent and Pamela Wallace was caught on tape and referenced in court files as evidence of angry and erratic behavior.

The complaint was dropped when the Wallaces filed for their latest bankruptcy.