CLEARWATER —When Wayne Chase retired from his nuclear plant job in 2012 and bought a waterfront condo overlooking Tampa Bay, he knew he'd pay the typical fees that come with gated community living.
But when he got his tax bill that year for his two-bedroom unit in Grand Venezia off U.S. 19 and Belleair Road, he was surprised to see $1,600 in assessments on top of the $1,000 in property taxes.
It wasn't until he started asking neighbors that he discovered most of that $1,600 bill was an assessment to pay off a debt run up by a convicted felon who ran the development as a Ponzi scheme years before Chase settled there.
Although the mastermind of the failed Grand Venezia luxury resort project in the Clearwater Cay Development District is serving a 40-year federal sentence for fraud, residents of the 336-unit complex are still paying for his crime. Former developer Dave Clark's company took out a $30 million note for his promised resort in Clearwater, one of 14 Cay Clubs from Las Vegas to the Keys, but a decade after the plan crumbled, residents are still paying back the debt through assessments.
The bonds were issued to build a water park, high-end retail, a spa, canals with gondoliers and other amenities around the existing apartments that were converted into condos — but the infrastructure was never built. And likely never will be.
Safety Harbor lawyer Bruce Barnes filed a lawsuit this year on behalf of the homeowners' association to essentially dissolve the Community Development District and free residents of the burden. His argument is the Community Development District serves no public purpose required by law and never built the development it was created for in the first place.
"He's still inflicting harm on people," Barnes said of Clark. "The law firm that represented his (company) that went before the city and convinced the city to approve this, they're still serving as CDD council. They're still getting paid."
Community Development Districts are special entities approved by local governments that have power to borrow money through bonds for construction and roads and repay the debt by assessing property owners within the district. CDDs are also responsible for maintaining their own infrastructure.
The Clearwater City Council approved Clark's Clearwater Cay Community Development District in 2005 after he told city officials his "ambitious project will revitalize the entire area," according to minutes from a work session that year.
But Cay Clubs went on to run a fraudulent scheme by using funds of lenders to purchase condos and flip the units to buyers at inflated prices. Clark and his associates promised investors who bought the condo units that they would receive steady rental income and upfront "lease-back'' payments of up to 20 percent of the purchase price at the time of closing.
Federal investigators said the company raised more than $300 million from buyers, but the operation turned into an illegal Ponzi scheme when it began using money from new buyers to pay the lease-back fees to earlier ones.
The outfit crumbled around 2007, and most of the original buyers, who bought units upwards of $500,000, unloaded their properties through short sales or foreclosures, Barnes said.
Although current residents, many of whom bought the units for their location on the bay at prices around $100,000, came in with no expectations of a future resort, they didn't understand their assessments until after their purchase.
Of the overall bond debt, residents are responsible for repaying about $5 million, which will bloat to more than $10 million with interest by the time the bonds mature in 2037.
"I felt very angry and confused and frustrated because I didn't know anything about it," said Tom McAnulty, a Canadian pharmacist who bought two units in Grand Venezia as investments in 2009. "All of a sudden, I and everybody there owe a bunch of money to people we don't know anything about."
While McAnulty didn't hire a lawyer for the purchase, he said he used a title search company to evaluate any liens. "Would I have still bought if I knew? Maybe not," he said. "I certainly wouldn't have bought two."
But David Smith, managing shareholder for Gray Robinson law firm in Tampa, which represents the CDD, said the entity is legally required to make good on the bonds and repay this debt to the financial market.
"Bonds do not disappear," Smith said. "It's devastating to the financial market if they wipe this out."
He said a portion of the funds from the initial bond offering was used to purchase the land within the district, not just to fund the infrastructure that was never built.
And property owners would have been aware of the nature of the assessment and knew what they were getting into by reading property documents.
"I know a lot of people don't have an understanding of what development districts are, but it's on the public record," Smith said. "You can't buy and act like you're blissfully ignorant. You can't just undo it because you don't like it."
This summer, the CDD filed a motion for the Grand Venezia and Barnes to pay its attorneys fees based on Barnes filing a "frivolous" lawsuit.
And some Grand Venezia residents are worried they will be stuck with paying the legal fees of this case, on top of the assessments, if their lawsuit is not successful.
"They don't have a snowball's chance in hell of winning this," said Jerry Lancaster, CDD assistant secretary and Grand Venezia resident. "There's no question these guys were crooks and they're in jail as a result of it, and you can argue (the lender) should have been more judicious in loaning the money, but the process is set up. The judge certified it."
But Barnes said the CDD, as it stands now with no public benefit, is in violation of the statute.
"The CDD is a government, and it is a government that was created by a convicted felon and a government that has been perpetuated where no benefits have been conferred on the people who are paying for that government," he said. "Nobody can justify it staying in existence or rationalize it."
The case is scheduled to go to mediation in late January.
Contact Tracey McManus at firstname.lastname@example.org or (727) 445-4151. Follow @TroMcManus.