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The plan to turn a city-owned eyesore into a mixed-use downtown tower faces yet another setback.

The Museum on the Square project proposed for the long-vacant former AT&T building on Old Courthouse Square will need another six-month extension from the city to give the much-anticipated deal more time to close escrow.

If approved by the City Council, it would be the third extension granted for the $1.9 million sale agreement between the city and the project's developer, The Hugh Futrell Corp.

The sale had been on track to close in April, but questions raised by the title company have held up financing for the project, David Gouin, the city's director of economic development and housing, told the City Council on Thursday.

The city's redevelopment agency purchased the five-story concrete structure in 2007 for $3 million with an eye toward finding a developer to revitalize the space.

The board in 2010 selected a development team headed by Futrell, which proposed transforming the windowless bunker into a 10-story glass-clad tower with space for the Sonoma County Museum and a restaurant on the first floor, four stories for offices, and five new floors of luxury apartments.

Gouin already granted two six month-extensions to allow the project to work through other hiccups. One involved whether to allow future residents of the building to drive through the city's transit mall to access parking. That request was eventually granted by the city council.

The latest extension granted the project until June 30 to close escrow.

But the Feb. 1 elimination of the city's redevelopment agency created a wrinkle that has further held up the sale. At that point, ownership of the building was transferred to the successor agency of the redevelopment agency, the Santa Rosa City Council.

A seven-member oversight board has been set up to review the debts and, if appropriate, dispose of former redevelopment agency assets and disperse the funds to other taxing entities. The board has taken the position that the sale of the building is a valid contract that must be honored.

The state Department of Finance, however, has ultimate say over which contracts are valid.

The title company handling the sale needed some clarification about who exactly has the authority to sell the building, Gouin said.

"They just wanted assurance that the transaction would be valid under the law once the process ran its course," Gouin said.

City Attorney Caroline Fowler said her office has been in touch with attorneys for the title company, whom she characterized as "very skittish because of the uncertainty with redevelopment."

The city expects to hear back from the state Department of Finance soon about whether the various contracts and debts of the former redevelopment agency are valid.

City officials have expressed confidence the sale contract is valid because it predates any discussion of the dissolution of redevelopment. Gouin told the council he is confident the project will get the green light.

"I believe it will happen this year," he said.

Futrell said the title insurance questions did cause a delay, but the issue has been resolved. Other aspects of the project remain on track, including securing signed leases from major tenants. The company is "deep into financial review with lenders" and expects construction to begin in the fall, Futrell said.