Condo project faces money, legal woes
June 9, 2008 · Updated 2:22 PM
Like many business ventures, success hinged on the interaction between two different lines.
The first line, made up of eager investors in the Meridian a 16-unit luxury condominium development on Ericksen Avenue was to be fed by the second line, which was expected to form at the sales office once the project was complete.
But according to some, the investors line kept growing, while the sales line barely breached the doorway. Now, Meridian developers are being sued by several investors who say they were promised returns that have yet to be delivered.
It sounded like a safe investment, said Jean Schanen, who with her husband Glen Huff poured $50,000 into the project three years ago.
The Bremerton retirees said they were enticed by favorable interest rates and guarantees from a Poulsbo businessman with whom theyd worked successfully in the past.
The Schanens werent the only ones who found the terms enticing.
In all, at least 57 investors contributed some $2.8 million to the project, according to documents from the state Department of Financial Institutions.
Of those investors, several are listed as plaintiffs in the lawsuit, ranging from Bela Szabo who invested the largest sum, $200,000 to Mark and Kimberly Senner, who invested $20,000.
The suit was filed last fall in Kitsap County Superior Court, and amended this month to include more claims and parties. It alleges breach of contract, fraud and negligent misrepresentation, among other claims against developers.
Several individuals and companies are listed as defendants, including island-based Malibu Development Corporation and The Meridian on Bainbridge Island, LLC. The companies are headed by Poulsbo developers John Ericksen and Bruce McCurdy, both of whom also are listed as defendants in the lawsuit. Other defendants include Edmonds appraiser Lauren Ellis and Poulsbo businessman Christopher Hein.
According to the suit, events unfolded in the following way:
In July 2003, Malibu received from a local credit union a $4.5 million loan to build the Meridian. The credit union took first position on the deed of trust on the entire project, with other early lenders assuming subordinate positions.
One year later, Heins entered into a finders agreement with Malibu that entitled him to a percentage of each investment he secured for the project.
The suit says Heins lured individual investors with signs that offered 8 percent APR 12-month Maturity Fully Secured, though interest rates as high as 12 percent were offered depending on the amount invested.
Investors who according to the suit were not accredited or sophisticated were promised first position on the deed of trust.
Heins, McCurdy and Erickson represented to each plaintiff that they would unconditionally be repaid their principal invested, plus a return on their investment, by a date certain, as set forth in a promissory note, the suit alleges.
But many investors, including Schanen and Huff, say that when promissory notes came due they werent repaid.
Instead, they were offered higher interest rates to renew their investments. Schanen said she and her husband were uncomfortable with the offer, but reluctantly agreed.
We didnt like it, but there we were, she said, adding that the couples past dealings with Heins gave them hope. He convinced us he was a very trustworthy person.
Phone calls from a reporter to Ericksen were not immediately returned. Hein was reached Monday, but declined to comment until the case, set for trial next summer, is resolved.
McCurdy issued a statement on behalf of Meridian and referred questions to attorney Lawrence Engel, who couldnt be reached. The statement said Meridian last week filed for Chapter 11 bankruptcy to avoid foreclosure.
The purpose behind this bankruptcy filing is to preserve the value of Meridians assets for the benefit of its creditors, it said.
The statement acknowledged the recent amendment to the lawsuit, saying the litigation against Meridian would be stayed by the bankruptcy filing.
As such, Meridian has no comment on the merits of the additional claims and and parties that have been added. Meridian is continuing to work, within the structure and auspices of the Bankruptcy Code, toward a practical financial solution to remedy its present situation.
Meridian is hopeful that the Chapter 11 case will provide it with a proper vehicle to realize on the full value of its assets, for the benefit of all of its creditors, including the plaintiffs.
Separate from the lawsuit, the state in June issued a cease and desist order against Malibu, Meridian, Heins and Michael Reetz who allegedly referred investors to Heins imposing $100,000 in fines between all the respondents.
The order alleged they violated the Securities Act of Washington, though each respondent has the option to contest.
Meridian has been aggressively advertising of late, including in the Bainbridge Island Review, offering prices starting at $449,900 for a two-bedroon, two-bathroom unit. Of the propertys 16 units, 10 remain unsold, according to its website. Prices top out at $870,000.
Meanwhile, Schanen and Huff, at 69- and 77-years-old respectively, say theyre unhappy with the uncertainty caused by the situation.
It makes the future kind of scary, Schanen said. That was some of the money we had set aside to last for the rest of our lives. Now we dont have so much.