By Noah Haglund and Diana Hefley Herald Writers
SNOHOMISH — City leaders vowed Tuesday to explore any legal means available to avoid pressuring more than a dozen homeowners to cough up thousands of dollars for unpaid building fees the city neglected to collect years ago.
That may not be as easy as it sounds. Mayor Karen Guzak said Wednesday that city staff already has explored some of the new proposals.
The latest turn came when Councilman Greg Guedel suggested directing city staff to explore any insurance the original developer had when the affected homes in the Denny and Kendall plats were built five to six years ago. Guedel, who works by day as an attorney with a high-profile Seattle law firm, also suggested the city head to court to explore obtaining a judgment against the developer.
The motion passed unanimously.
“Everybody is going to look at every possible option to get this resolved and make this go away,” Guedel said after Tuesday’s council meeting.
Elected officials in Snohomish aren’t the only ones trying to help the homeowners in the Denny and Kendall development. The state Attorney General and state Auditor’s offices plan to investigate the neighbors’ complaint as well, though it’s unclear whether they’ll be able to provide any relief.
In Snohomish, city staff are expected to update the council on available options next month. Billing records show the city has spent more than $5,000 since December 2011 consulting with attorneys about the unpaid fees.
That doesn’t include the $20,000 the city paid to settle a labor dispute with the former permit coordinator, the person it fired in part for her mishandling of the fees. Under the settlement, the city also wrote her a letter of recommendation.
Guedel prefaced his motion by saying he was “embarrassed and ashamed” about what had happened to the homeowners. In their place, he said he would have the same frustration. Because of ambiguities involved in the case, he believes the city should side with the homeowners.
Before other council members and the mayor voted 7-0 for Guedel’s proposal, they recessed in executive session for 25 minutes.
The vote came near the end of a boisterous City Council meeting during which Guzak and city manager Larry Bauman told the audience they felt badly, but there was no legal option other than to making the homeowners pay for mistakes they didn’t make.
“I wish it were otherwise,” Bauman said. “If we could find the legal means to change that, we would do it in a heartbeat.”
About 10 people spoke on the issue. Two walked out during Guzak’s comments. Another homeowner pointedly told the mayor that he found it offensive when she said “we’re all in this together” after trying to bully residents into paying for the city’s own mistake.
Neighbors on Tuesday also made it clear they’re considering legal action, though the cost of hiring an attorney could very well exceed the fees owed on any individual home.
“That’s the last thing I’d want to do is sue my own city — I love it here,” said Adam Kemper, whose house has $20,000 in outstanding fees.
Kemper and his wife, Jamie, said they’re already suffering real economic consequences. They said they missed the chance to refinance at a lower interest rate, leaving them with mortgage payments of at least $100 more per month higher. They also were unable to take advantage of a home-equity loan.
The city says that 13 homeowners need to pay $3,000 to $20,000 each.
Before issuing building permits, the city should have required developer Dynasty Homes of Everett pay sewer-connection and school-impact fees. That procedure is laid out explicitly in city code.
Instead, Snohomish waited until April 2012 to inform the homeowners about the problem. By then, some people had lived in their homes for four years while others had already been bought and sold.
The homeowners had hoped for a reprieve this fall, but were disappointed when Guzak sent them an apologetic letter in October informing them that, according to the city’s interpretation of the law, the fees could not be waived.
The city asked the homeowners to pay the fees whenever their homes are sold or refinanced. The city is not placing a lien on the homes or asking for interest.
City records show that Bauman and other top managers in Snohomish knew of the unpaid fees by late 2008 — well before some of the brand-new homes were ever sold.
At this point, the city is trying to recoup about $120,000. At one point the uncollected fees approached $500,000, including other developments.
Last year, the city requested a criminal investigation into possible forgery. A sheriff’s detective assigned to look into the situation concluded that one city inspection document was forged, but said there was insufficient evidence to prove who was responsible. The questionable document was for a house that has no outstanding fees.
The city also appears to have failed to disclose to title companies that the fees were owed. Records show that the city only notified companies involved in the home sales that the properties owed outstanding water and sewer bills, not that the connection fees were never paid.
Some fees have been paid since the issue came to light in 2012.
One builder, Jeff Gray, paid the fees soon after talking with police.
The other, George Fischer, wrote the city a letter last year, stating:
“It should be noted that all of the companies that built and sold these homes are insolvent and have no assets.”
Neither returned phone calls Wednesday afternoon.
Guzak said the city attorney had succeeded in collecting about $279,000 in fees from Gray’s Dynasty Homes and Fischer’s Denny Rentals. City staff earlier determined that an insurance claim would not be a viable solution, since liability insurance policies required for contractors and developers exclude fee payments, she said.
There are few obvious clues as to why some homes got stuck with outstanding fees, and others did not.
They sold at different times. Different title companies were involved in the transactions. Some were foreclosures.
For years, companies controlled by Gray and Fischer owned some of the houses as rentals.
One home with $6,000 in unpaid school-impact fees was among the first in the neighborhood to be built and sold, in 2008. Owner Ric
Suarez didn’t learn about the fees for four years.
“We have absolutely clean hands,” Suarez told the City Council on Tuesday. “The city does not.”
The neighbors on either side — Adam and Jamie Kemper and Kathy and Larry Coyle — both bought their homes in 2011. Both families are each on the hook for nearly $20,000.
In some cases, Spokane-based Sterling Savings Bank took over homes and was allowed to sell them without the unpaid sewer and school fees ever coming up at closing.
Foundations for a couple of the affected homes were poured in2008, then sat for years without being built out, Fischer and Gray told authorities.
A Nov. 10 story in The Herald drew new attention to the homeowners’ plight. Last week, the state Auditor’s Office said it would examine why the city failed to collect the impact fees as part of its next regularly scheduled audit. That’s not expected to happen until at least next year.
State auditors noted problems with permit fee collections in Snohomish as early as 2009. The office recommended in 2010 that the city implement better internal controls in its building department.
The state Attorney General’s Office earlier said it did not believe it could pursue the issue under the Consumer Protection Act.
However, a different part of the office, the state’s Solicitor General, has been asked if it can investigate the matter under a different authority.
Noah Haglund: 425-339-3465, firstname.lastname@example.org.