“Falling Through the Cracks”

September 15, 2011

The Sept. 15th issue of the Gotham Gazette highlights efforts by Legal Services NYC-Bronx and South Brooklyn Legal Services to assist tenants living in crumbling, foreclosed-upon multifamily buildings. Legal Services NYC-Bronx Staff Attorney Ian Davie and SBLS Housing Unit Co-Director Brent Meltzer discuss the challenges tenants face when landlords and banks abandon properties, leaving them to cope with seas of trash and debris, rodents, bedbugs, mold, water damage, unsecured entrances and a host of other conditions which threaten their health and safety.

From the article :

The scenario leading up to such cases generally went as follows: A landlord obtained a mortgage and purchased an apartment building during the booming 1990s or early 2000s, often for more than the property was worth. In the Park Slope case, “the owner got a mortgage for $1.85 million. The most that the property could have supported was probably about $500,000,” says Brent Meltzer, an attorney for South Brooklyn Legal Services who represents the tenants.

By 2008 or so, the housing market began to dive, and the property was no longer worth as much as the owner paid for it. Operating costs such as water and insurance also increased dramatically, making it difficult for landlords to cover their costs. In rent regulated buildings, the owners were limited in how much they could raise rent, and even in buildings that were not regulated, the market kept landlords from increasing rents. This left the landlords to choose between using rent proceeds to meet mortgage payments or for the building’s maintenance and repair. The former inevitably won out, but many owners still could not pay the mortgage, and so the lending bank eventually foreclosed on the property.

A bank that forecloses on a property does not officially become the property owner — with both the right and responsibility to enter the building and perform necessary maintenance and repairs — until the legal process is completed. During the intervening months or years, the property and its tenant remains in a no man’s land of sorts, according to Lander, whose district stretches from the Columbia Waterfront to Borough Park and includes Park Slope. “The bank brings the foreclosure, the owner essentially walks away and there’s no one left to take care of the building,” he said.

The court typically appoints a receiver to collect rent and use the money to perform limited maintenance, but not necessarily to make significant physical improvements. “The receiver is not there to fix up the building and make it better. Its role is basically to do general upkeep,” Meltzer said.

In the Brooklyn case, the court didn’t appoint a receiver until almost a year after the foreclosure suit began. A court order limits him from spending more than $2,000 on a single repair without the bank’s consent.
Physical problems often occur in these rent regulated apartment buildings facing foreclosure both because the buildings are typically older and require substantial maintenance and because the relatively low rent income made it difficult for landlords to make major repairs.

The foreclosure process, said Meltzer, is messy. “Everyone is trying to point the finger at someone else. Meanwhile, the tenants are just sort of stuck sitting there without repairs being done,” he said.

In an effort to change that City Council is considering three bills. Intro 494, proposed by Lander, would require a bank seeking foreclosure to post a bond to cover the cost of any emergency repairs along with fees and fines for housing code violations. Housing committee chair Erik Dilan has two measures: Intro 500, which would make a bank seeking to foreclose on an apartment building responsible for maintaining the property, and Intro 501, which would require a bank bringing a foreclosure action to register with the city housing department within 10 days after it initiate the action.

The measures’ supporters and tenants’ attorneys reason that banks should be responsible for the conditions at foreclosure properties because they helped create those conditions by providing “overleveraged” loans, mortgages with a monthly payment that cannot possibly be covered by rental income. 

“The problem over the past five years has been the banks bankrolling this,” Ian Davie, a Legal Services attorney representing the Bronx tenants, said. “It’s very straight forward: The income from the building can’t support the debt service on the mortgage.”

[…]

Perhaps the one thing that everyone agrees on is that the foreclosure process leaves tenants in a precarious situation.
Jimenez pays $152 a month for his apartment. While renters paying 10 times as much or more for their apartments may have a hard time empathizing with him, Meltzer said there are a host of reasons why they should be concerned about him and his neighbors.

“No matter how much they’re paying, no one should be living without heat or hot water, especially elderly and disabled tenants and especially in New York City,” Meltzer said.

The Park Slope tenants, he said, have earned their homes. “Don’t forget, this was a different neighborhood 10 years ago. This wasn’t Park Slope, this was Gowanus. These are the people who stabilized the neighborhood when New York was falling apart. They lived there in the ’70s and ’80s when people who are living there now wouldn’t dare to,” he said.

So Meltzer, Lander, Davie and others plan to continue working on behalf of these and similar tenants. “This is a problem that’s not going to go away anytime soon,” Davie said. “We will certainly keep trying to fight to hold banks accountable.”

Read the piece in its entirety at gothamgazette.com.

Join us. Demand Justice.

In this extraordinarily challenging moment, your partnership with LSNYC is critical. Please join us by making your gift today.

Call Us: 917-661-4500