Southeast Francesca Lane cuts up and around a hillside to reveal the boom-time promise of Happy Valley circa 2006.

Young families rolled in to snap up $600,000, stone-fronted homes with Mount Hood views. They came for the country meets cul-de-sac life, solid schools and a 4,000-square-foot edition of the American dream. Speculators trailed on their heels for the next get-rich-quick venture.

Francesca Lane circa 2008 isn't dreamy any longer.One of every five homes or lots on the street has fallen into foreclosure since the neighborhood sprang up three years ago. The street offers a grim picture of how greed dragged Happy Valley, Oregon and even the world into financial turmoil.

Francesca Lane is where the country's gamble on high-risk mortgages inflated home values, then crashed down on the freshly manicured lawns. All sides contributed.

A builder who pumped out more high-end homes than the town's buyers demanded. Mortgage lenders who ditched traditional standards with subprime loans, no down payments and 11 percent interest rates. Speculators who banked on climbing home prices. Buyers who took on more home than their pay stubs said they could afford.

The collapse has fallen on the mighty and tiny.

The king of Happy Valley homebuilders, Roger Pollock and his Buena Vista Custom Homes, faces a foreclosure lawsuit on two Francesca Lane lots.

Dick and Aloma Anderson, a retired couple from Clark County, gambled that they could flip a Francesca Lane home for a quick profit. Now, their retirement won't be quite as golden.

Portland's housing market has generally avoided the deep pain found in fast-growing Southwest cities or economically stagnant Detroit. Yet Happy Valley -- along with Clark County and central Oregon provides a local example of the California-style 'burb boomtown gone bust.

The suburb that should be so upbeat is infected with plunging home values, 675 empty lots carved into hillsides and 35 half-finished homes soaking in the rain. To the most macabre, Happy Valley is known as Death Valley and its slopes as Foreclosure Hills.

Across the Portland area, home prices actually rose in the first nine months of 2008 compared with the same period in 2006. But in Happy Valley's main ZIP code, prices fell 24 percent. The foreclosure rate of 1.7 percent is double the regional average.

The ramifications are broad. Happy Valley's vast supply of unsold homes and lots will suppress values across the east side for months, if not years, to come.

"It was the next dot-com," says Jeff Tabler, 40, who bought a discounted Francesca Lane home at an auction in January. "Anyone who thought they could speculate on it did speculate on it.

"These people were into the concept of making money, and it just got out of hand."

Farmers fought growth

It seems implausible today, but Happy Valley incorporated as the anti-city to halt growth.

By the 1960s, the city of Portland had steamed eastward, and Happy Valley's small farmers fretted that their community would be overrun by asphalt.

The city of Happy Valley

•Founded: 1965

•Population: 10,380 in 2007

•Growth: 129 percent between 2000 and 2007, making it Oregon's fastest growing city



They formed the city of Happy Valley in 1965. For the next three decades, James Robnett held the mayor's seat, but his title might as well have been growth gatekeeper. The town lacked a sewer pipe to absorb new homes, and Robnett wasn't about to build one.

Oregon won national acclaim for clamping down on distant sprawl by sending growth to places close to the big city like Happy Valley. Yet Robnett and his supporters riled regional planners by holding onto their rural resistance.

Capitalism eventually overpowered.

Grocery stores and strip malls rolled out Southeast Sunnyside Road and brought a sewer pipe to the city's border. A younger, more growth-friendly group won City Council seats and voted out Robnett in 1995.

Five years later, regional planners got their way as Happy Valley agreed to open a vast hillside above Sunnyside Road to subdivisions. To serve the hill, the city replaced a remote farm-to-market road with a tree-lined boulevard that became Southeast 152nd Avenue. The new road eventually paved the way for Francesca Lane.

By 2003, the table for growth was set. That's when Roger Pollock arrived carrying plans to house the next generation.

A brash builder with a plan

Happy Valley had never seen anything like Pollock and Pollock had never seen anything like Happy Valley.

The town was so quiet it wouldn't allow a grocery store in its trademark hollow for fear of attracting too much commercial buzz. Residents prized their oversize lots, custom-built homes and pastoral scene.

Pollock, on the other hand, is a brash, bleached-blond, chain-smoking, fast-talking builder.

He arrived with a business model to stamp out tract homes as fast as anyone. He favored oversize homes for relatively undersize prices. His homes attracted young, growing families but conflicted with the town's more stately image.

"If the city had its choice of a builder, Roger Pollock would not have been their first choice," says Gene Grant, the town's former mayor.

Sipping bottled water at a Starbucks near town recently, Pollock describes Happy Valley as a suburban utopia with the polish of a new city and the quaintness of an old farm town. Wide, freshly paved streets. Easy freeway access. Sweeping views. Happy Valley has become the Generation Y hot spot while Beaverton -- the baby boomers' boomtown -- looked worn out and traffic-choked.

"It is an incorporated town inside a bigger city, not unlike Beverly Hills," Pollock, 47, says without a touch of sarcasm.

Pollock took out bank loans to buy nearly every lot primed for new homes. "I didn't have a monopoly, but I owned all the lots," he says, chuckling.

Facing stiff competition starting in 2003, Pollock agreed to pay about $128,000 a lot when the going rate was $115,000. He knew he overpaid but presumed he'd make the money back as values climbed. In some cases, Pollock says, he resold lots for as much as $225,000. But he kept most to build on himself.

Pollock's Happy Valley projects propelled Buena Vista Custom Homes into the nation's fastest-growing homebuilding business, trade journal Builder Magazine declared in 2005.

That year, his homebuilding machine rolled onto Francesca Lane on that hillside above Sunnyside Road. By summer 2006, the Portland housing market was boiling over. Prices rocketed up 30 percent in two years, more than double the historical pattern.

That's when Aloma and Dick Anderson showed up on Francesca Lane.

House flips retirees

The Andersons arrived after reading news stories about Happy Valley's charm.

The couple lived a comfortable retirement in Clark County's Hazel Dell neighborhood afforded by Social Security and their public employee pensions. Dick, 70, retired after a career teaching at the Washington State School for the Blind. Aloma, 66, stayed home to raise the couple's three children and worked for a while at Clark College in Vancouver.

Both came from Minnesota and clung to Midwestern values. "We've never had a negative thing on our credit. We were one of those people with a 770 credit score," Aloma says while rocking in a chair in her living room in Hazel Dell, the clothes dryer humming in the other room.

Still, Aloma saw opportunity in Happy Valley's hills.

The couple had never bought an investment property. But by 2006, flipping houses had become so common nationwide that TV networks celebrated it with reality shows. Aloma was certain they could buy a home, resell it for a hefty profit and pad their retirement.

That's how they ended up on Francesca Lane in winter 2006. The Andersons saw a fleet of construction vans and heard nail guns popping. After talking to a salesman representing Buena Vista, they picked a lot with a yard a family could ramble around.

Aloma says the salesman told them the home would be worth as much as $1 million by the time it was finished in the summer. They never hired their own real estate broker.

They closed the deal in August 2006 on the four-bedroom, 5,000-square-foot home for $633,865. It was a steal, they figured, at $125 a square foot. "We thought it was a very simple situation. Good value, good ambience," Aloma says.

The Andersons bought the home with a no-money-down loan and an 8.5 percent adjustable interest rate from Hyperion Capital Group of Lake Oswego. That added a $5,000 monthly payment on top of the $1,500 for their Hazel Dell home.

Within weeks, Aloma put the house on Craigslist for $799,000. She planned to sell it herself and made the 35-minute drive most Saturdays to host open houses. She'd stay for seven hours and usually saw no one, a signal the market boom had wilted.

She lowered the price to $749,000. Even after a year, she still had no offer. The Andersons refinanced their Hazel Dell home twice to raise cash for the Happy Valley mortgage. In late 2007, they raided their IRA.

Still no offers.

By then, the nation's housing market had tumbled as subprime mortgage lenders went belly up. Pollock expected things would get much worse, and he cut his losses. He announced an auction in December 2007 to sell 230 homes, including some on Francesca Lane, at bargain prices. His move drove down home values across the city.

"When he did that to us, it killed us," Aloma says.

She mailed her last payment in January, and the lender declared the mortgage in default three months later. Staring at a loan far higher than the home's value, the Andersons faced losing the home to the bank.

A real estate broker found the Andersons a bargain hunter. The lender approved the sale for $515,000. That's $123,000 less than it had loaned the Andersons 20 months earlier.

The Andersons never spent a night in the Happy Valley money pit. But the mortgage, fees and taxes cost them close to $100,000.

"We did everything we thought we could," Aloma says.

Looking back, seeing differently

Pollock's once high-flying company has nearly dissolved. He has reduced his staff from 50 to two and halted new construction.

Buena Vista stopped paying its loan and property taxes on the two Francesca Lane lots because Pollock said they were "nonperforming assets." He hopes to sell the lots, but for now the builder owes Clackamas County $12,170 for three years' worth of taxes.

More on Francesca Lane

•Find out more about Francesca Lane's foreclosures, watch a slide show of Happy Valley photos and see a 2007 Buena Vista Custom Homes' advertisement at Oregonian reporter Ryan Frank's Front Porch blog



•Ryan Frank also will host an online chat about this story and all real estate news from noon to 1 p.m. Tuesday at oregonlive.com/business

Looking back on the bust, Pollock says the plunging market, not his auction, drove down Happy Valley's values. About the Andersons, he says his sales staff never would have suggested their home would be worth close to $1 million.

"Everybody always needs somebody to blame," Pollock says.

Pollock's company made millions on Happy Valley's growth. How much? "I don't want to tell you," Pollock says as he steers his black Cadillac Escalade through the town and takes a drag on a Camel Light. "I'll get in trouble." He'll say only that he sold 600 homes or lots in the boom and that he expects to build again in Happy Valley when the market recovers.

Pollock spends part of his time now building a resort in Mexico near Cabo San Lucas and still has his 19,000-square-foot Dunthorpe house. But the housing downturn, he says, has taken its toll on him, too. "It's really tough paying the bills. I'm not immune," he says. "Stressed? Yes. Worried? I believe in myself. I know it will work out."

With hindsight, Aloma Anderson painfully diagnoses her mistakes. "I saw dollar signs," she says.

She says she should have hired her own real estate broker for expert advice. "That was our mistake. My mistake," Aloma says, hanging her head, blinking back tears.

The couple would like to sell their Hazel Dell home to move closer to family in the Midwest. But the Clark County market is about as bad as Happy Valley's. Their builder, Pacific Lifestyle Homes, is now bankrupt. The home was appraised for $465,000 last year. Now, she'd take $379,000.

After all this mess, the Andersons had to tell their children they can't help out with money any longer. "That's a hard thing to tell them," Aloma says. "We don't have it anymore."

Along Francesca Lane, it's difficult to see the imprint left by foreclosures. The street, and most of Happy Valley, remains a tidy, typical bedroom community.

But look closer and you see signs. The Francesca Lane homes that fell into foreclosure resold for 80 percent or less of their original purchase prices. Pete Herder, who lives across from two foreclosures, figures his home has lost 15 percent of its value.

Down the hillside, half-finished homes line a couple of streets in a more upscale subdivision. "They're just waiting for arson," Herder says.

Contractors canvass the hillsides for homes like these. They call on the banks -- now the homeowners -- for fix-up work to seal out the winter rain.

Before anyone could block them out, birds took over one vacant house on a bluff nearby and turned it into the city's biggest birdhouse.

--Ryan Frank; ryanfrank@news.oregonian.com; blog.oregonlive.com/frontporch