PORT TOWNSEND — The owner of a high-end waterfront hotel and meeting space in a historic downtown waterfront building has filed for bankruptcy protection and is due in court next month to try to fend off bank foreclosure.
“Pretty much nothing about this project has been easy,” said Kevin Harris, the principal behind Quincy Street at the Waterfront LLC, which owns the Clam Cannery.
Last week, Columbia State Bank filed a motion for relief from a stay of sale on the foreclosure and wants to go ahead with the sale Jan. 14.
Columbia purchased the assets and liabilities of American Marine Bank, including the mortgage on the Clam Cannery, last January.
The motion and Quincy Street’s response, not yet filed, will be heard Jan. 7.
Court documents show a prolonged series of modifications extending the maturity date of the loan for refurbishment of the 1885 red brick cannery building.
American Marine first loaned $990,000 for refurbishment as office space for Harris’ software business in 2002.
Since then, plans for the building changed twice, for development as condominiums and as the present space.
Harris and his attorney argue that American Marine prevented the condo plans, which would have worked.
Following what the bank calls “so many significant delays and difficulties,” a whole new loan was required in 2007 for $1,845,000, then modified six times to extend the due date.
By April 2009, “the property still had not been completed and, with the national financial collapse in the fall of 2008, it was clear that if the property were developed as condominiums, they would not sell or, if they did, they would not sell at a price sufficient to retire the bank debt,” according to Columbia’s motion to the bankruptcy court.
The bank claims Quincy Street owes a total of $2.7 million, including interest, late charges and fees, which so far include $34,000 in attorney’s fees for foreclosure and litigation.
Harris is not only contesting the foreclosure proceedings, but also filed a lawsuit against the bank in January over the condo issue.
Marc Stern, his bankruptcy attorney, said his client has a business plan to satisfy the court and the bank’s interest.
“We are in the process of filing a Chapter 11 plan and we expect to offer the bank the entire amount they’re entitled to and cash them out in five to seven years,” he said.
Columbia has argued that “there is no possibility of a successful reorganization within a reasonable time” and accuses Harris of filing for bankruptcy in bad faith, only one day before a previous foreclosure sale was scheduled.
But Mark Clausen, who is handling the lawsuit for Harris, said the filing was forced by the bank’s determination to foreclose. Harris was denied a motion to strike the scheduled trustee’s sale in Jefferson County Superior Court.
Both attorneys argue that the bank has failed to adhere to the terms of its own agreement.
“Essentially the bank became afraid it wouldn’t get repayment if the units were sold as condos and forced the change of use,” Clausen said.
“The bank has to release its interest unit-by-unit and if the bank won’t do that, the marketing of condos is a useless act,” he said.
Clausen and Stern, who do not practice together, both noted that the bank’s foreclosure action might not cost Columbia all that much anyway, since the Federal Deposit Insurance Corp., or FDIC, agreed to a 70 percent loss-share agreement when Columbia took over the failing American Marine.
If the bankruptcy court agrees to let the process go forward in January, the next step is approval of the business plan, Stern said.
If it rules for the bank, foreclosure will continue, and so will the lawsuit.
“I just think the damages get a lot worse,” he said.
“I think we’re right,” Harris said, “not only legally right but morally right. . . . whatever happens, I’m proud of the project.”
Harris owns Microsystems, a Seattle software company in Seattle. He moved with his family to Port Townsend 11 years ago.
He also owned another failed business.
Pennco Transportation of Carlsborg in Clallam County, operated an airport shuttle service to and from Clallam and Jefferson counties until idling its vehicles in 2005.
If the foreclosure goes ahead, it also will likely bring about the end to Harris’ plans to develop a float plane landing and dock next to the cannery, where he leases the old ferry dock owned by the Port of Port Townsend.
Port Executive Director Larry Crockett said the port was officially notified of the bankruptcy action, although the lease arrangement is not directly part of it.
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Julie McCormick is a freelance writer and photographer living in Port Townsend. Phone her at 360-385-4645 or e-mail julie mccormick10@gmail.com.
