"Sewer district attorney hedges bets on costs, legality of bonds"
June 25, 2008 · Updated 2:14 PM
"Having spent the past two weeks reading through 1,700 pages of bond documents, meeting minutes, and interviews conducted by the state Auditor's Office, an attorney recently hired by the Holmes Harbor Sewer District had few certainties to report to district homeowners last week.At a commissioners meeting Thursday night, Michael Ruark, an attorney with the Seattle firm of Inslee Best Doezie & Ryder, told Holmes Harbor homeowners they should not have to worry in the short term about whether or not they can sell their homes. He said his initial reading of the documents regarding a $20 million bond sale by the district's commissioners last October tell him that district property owners have no direct liability for the bonds, which were declared illegal by the state Auditor's Office in August.However, he said ratepayers will probably have to pay additional legal fees to defend the district against lawsuits if the bond go into default. They might also have to pay higher sewer rates if the district loses such a lawsuit.There are still potential financial consequences, he said.The potential for the bonds to go into default is high, Ruark said. He said if a court rules that any part of the bond offering was made in a fraudulent manner, the bonds will be of no value. In his first reading of the bond documents, Ruark said he noted several potential areas of fraud, including a section regarding construction contracts.In the bond offering, developer Terry Martin claimed that he had signed construction contracts with three contractors to build office buildings on the 40 acres of land purchased with the bond proceeds. At the time of the offering, Ruark said, that statement appeared to be untrue.That could open the district up to legal liability.Some bond holder is going to turn around and sue the district for fraud, Ruark said.But Ruark also cautioned he could find that the bond issue is legal as he does a more thorough reading of the bond documents over the next few months.If it's legal, we're not going to court, he said.Ruark also ended the commissioners' hopes that developer Martin might pay off the bond and untangle the legal mess caused by the issue. Commissioner Meg Wingard asked Ruark whether Martin could use $63 million in construction loan agreements to bail out the district. Ruark said that is unlikely.There's nothing in these documents that obligates the developer to give you a dime, he said.For the time being, Ruark said, property owners living the sewer district need to protect themselves when it comes to buying or selling property. He said property owners should consider hiring an attorney to draw up documents that lay out the potential financial risks for buyers and sellers. With those documents, he said, there should be no obstacle to buying or selling homes or land within the district. "