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Steamboat Springs — Hayden leaders are upset about the mess at the Lake Village subdivision, but they don't think they could have prevented it.

The town put safeguards in place, Town Manager Russ Martin said. Developers got a letter of credit worth $502,000 and bonds worth $1.3 million to guarantee infrastructure work, he said. The town asked developers to put the project into phases, and they did, Planning Commission Chairman Karl Koehler said. Still, there were red flags, according to Planning Commission member Donna Hellyer.

Investors were coming and going from the beginning, which should have been a warning sign, she said.

"We're too trusting, I guess, and maybe not enough questions were asked," Hellyer said. "I don't know. I just feel like there's been a lot of innocent people hurt."

But if a developer follows town regulations, there isn't much Hayden can do to stop them, Martin said. The policies usually work, he said.

"I think about it frequently - whether I could have done things differently or should have done things differently," Martin said. "At the end of the day, we had a responsibility. If they completed all the rules and responsibilities, that's how you handle development. You process the applications, and off you go."

The background

The 40-acre Lake Village project was supposed to be the first filing of a plan for the 1,040-acre Villages at Hayden project. Lake Village was meant to consist of 86 single-family residences and six townhomes on 40 acres off Routt County Road 53 in southern Hayden.

Five unoccupied model homes sit on the property, and lot owners can't build on their land. Mechanic's liens worth $2.3 million have kept development at a standstill since late 2007.

Mountain Adventure Property Investments developed the project. That group consists of four partners: Grassy Creek Holding; 4-S Development; Oregon-based Robinson and Sons; and Oasis Development, an Oklahoma subsidiary of FSB Bancorp. Grassy Creek and 4-S are local companies.

Mountain Adventure and Grassy Creek are in Chapter 7 bankruptcy, and 4-S is in Chapter 11. Roger Johnson runs Grassy Creek, and Ron Sills runs 4-S. Neither has been reachable by telephone calls, inquiries to lawyers or visits to addresses listed for them.

About 10 locals own lots and are caught up in the problems. The liens, filed by Robinson Construction of Oregon, name those lot owners. Neither Robinson and Sons nor Robinson Construction are connected to RN Robinson & Son, a longtime Hayden business.

Koehler said he'd thought about what could have been done. He echoed Martin's words: If the developer meets the requirements, the town can't just say no.

"I think we did ask a lot of questions," Koehler said. "There was a certain amount of skepticism : from the get-go, I think, but again the kind of requirements that were laid out there for this person to meet were met. So I don't know."

He said he would like to review what happened with the Planning Commission. The experience at Lake Village hasn't poisoned Hayden's development process, Koehler said.

"It seems like we've had projects come before the commission, before the town since then, and I still have some faith in our system," he said. "The way this thing has been put together, there just are no guarantees, I guess."

Part of the debate is whether a letter of credit is better than a bond, Martin said. The town had both for this project and is using the letter of credit to pay legal expenses.

It was able to get the $502,000 from the letter through Vectra Bank, but Robinson Construction is trying to stop the town from getting the $1.3 million in bond money from Safeco Insurance. Robinson would be responsible for that money.

Martin has vowed that no town money will go toward fixing Lake Village.

Options, thoughts

Perhaps Hayden could have made sure development started before bonding, Martin said.

"That's not just residential," he said. "You adopt a policy of how you're going to handle development that'll only really allow large and very wealthy developments to ever occur. As a result, you'll never get a project that's at a reasonably affordable level."

Proceed with caution

In her discussion of the issues, Hellyer said she thought the town should slow down. It recently annexed 185 acres for a proposed development by Stefanus and Louis Nijsten and Bob Zibell. Hellyer said she had no problem with those developers but noted that they weren't finished with their Creek View project in western Hayden.

"Be cautious before you move forward so fast," Hellyer said. "Do investigating."

Koehler and Martin said the town shouldn't shy away from new construction. Koehler said he thought the Lake Village issues eventually would be resolved. One problematic project shouldn't dictate the future, he said.

"I don't think you can just shut things down from here forward because you had a bad experience," Koehler said. "You have to be open-minded and make sure the system is set up so that it's not in a developer's interest to let that outcome arise."

Martin said he didn't think anything the town could have done would have changed the outcome. Hayden must learn, move on and welcome reasonable development, he said.

If the town doesn't push forward, "as a community you lay in fear of every developer coming to town and ever doing anything, and that's extremely unhealthy for a community," Martin said. "There are communities that have that, and that makes everything run out of fear, but that's something I believe Hayden should not do."