When schoolteachers Walter and Maureen Keller bought a dilapidated mansion in a dicey northwest Denver neighborhood two years ago and then borrowed more than half a million dollars to transform it into a posh hotel, their friends and relatives told them they were making a big mistake.
They may have been right.
Though the Kellers sucessfully opened the Lumber Baron Inn bed-and-breakfast last fall, the owners have since become entangled in a thorny lawsuit with the general contractor in charge of the renovation project. As a result, unpaid subcontractors have encumbered the inn with tens of thousands of dollars' worth of mechanics' liens, threatening the security of a $300,000, taxpayer-backed loan from the City of Denver. And Broomfield-based Eagle Bank, which gave the Kellers a $300,000 loan guaranteed by the federal government's Small Business Administration, has taken a preliminary step toward foreclosing on the property.
"I'm really not at liberty to talk about it," Maureen Keller says when asked about the Lumber Baron's problems.
Attorneys involved in the suit say they hope it will be settled quickly and that business at the inn will flourish. But they acknowledge that construction cases can sometimes drag on for years in court. Subcontractors, meanwhile, are angry because they don't know when they'll get paid for the work they did on the project.
"We feel that we're being stiffed," says James Batterberry, co-owner of D&E Steel Services Inc., an Arvada company that installed a staircase at the inn and has since filed a lien against the property.
Located at the corner of Bryant Street and West 37th Avenue, the three-story, 8,000-square-foot Victorian home was built in the late nineteenth century by lumber magnate John Mouat.
The building had long since become a neighborhood eyesore when the Kellers purchased it for $80,000 in September 1993. Only one of its many bathrooms worked. The electrical wiring dated back almost a century. There was no heat. When her mother first laid eyes on the property, Maureen Keller has said, she burst into tears.
After a dozen banks turned them down, the Kellers finally convinced Eagle Bank to lend them half the $600,000 they needed to refurbish the structure. The City of Denver kicked in the rest in the form of a low-interest, five-year loan from the Mayor's Office of Economic Development (MOED).
The Kellers hired the William Roberts Construction Company to act as general contractor on the job. Owned by former Denver city councilman Bill Roberts, the company supervised all construction and completed its work last fall. The bed-and-breakfast opened in September with five luxurious guest bedrooms, loads of antique furniture, a modern commercial kitchen and a third-floor ballroom that can be rented out for weddings and other large functions. Rates at the Lumber Baron ranged from $125 to $180 a night.
But almost as soon as renovation of the inn ended, legal wrangling over costs began. In December the Kellers filed a claim against Roberts Construction with the American Arbitration Association, a private mediation company. According to court documents, Roberts Construction believes the Kellers owe the company an unpaid balance of more than $91,000. The Kellers, however, claim the amount due the contractor is less than $70,000.
The Kellers' attorney, Tim Atkinson, says the couple has raised a number of complaints against Roberts Construction with the arbitrator. Roberts, Atkinson says, finished the Lumber Baron job nine months behind schedule and provided deficient supervision during the job. Roberts vice president Jake Gilmore declines comment. A hearing before the arbitrator is scheduled for August.
In the meantime, subcontractors hired by Roberts Construction have become impatient about getting compensated for the labor and materials they supplied to the project.
In February, after a number of them had registered liens against the property, Boulder-based Boulderado Construction filed suit against the Kellers, claiming it was still owed more than $22,000 for construction of the building's wraparound porches and other carpentry work. Also named in the suit were Roberts Construction, Eagle Bank and four subcontractors.
Two months later Eagle Bank filed a complaint against the Kellers in court asking Denver District Judge Paul Markson to "enter an order, decree and judgment for foreclosure of Eagle's deed of trust." (Though the Kellers have made all of their payments on the loan, the mechanics' liens filed against the inn constituted a default of their loan agreement with the bank, according to court documents.)
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Craig Johnson, an attorney for the bank, says the foreclosure motion isn't as ominous as it sounds. At this point, Johnson says, the motion is just a legal formality to ensure that "the bank's rights are not compromised." Eagle Bank still wants to "do all it can" to keep the Kellers in business, Johnson says.
MOED deputy director Bill Lysaught says the City of Denver is aware of the suit and is "monitoring it closely." While Lysaught admits the liens against the inn "are a concern," he says he is hopeful the Lumber Baron will succeed and help revitalize the blighted surrounding neighborhood, which has been targeted for economic-development loans from the city.
Last month Judge Markson put the district-court lawsuit on hold until after the American Arbitration Association renders a decision over how much the Kellers owe Roberts Construction Company.