War Brewing Over Proposal to Regulate HDFC Co-ops

Paula Chin in Building Operations on April 18, 2017

New York City


Board member Richard James, pictured outside his Riverside Drive HDFC co-op, says the city is "lumping us all together." (photo by Jennifer We)

April 18, 2017

To help Mayor Bill de Blasio meet his goal of preserving affordable housing, the city’s department of Housing Preservation and Development (HPD) is proposing a sweeping overhaul of the rules that govern HDFC co-ops, former rental buildings that were abandoned by landlords, taken over by the city, and then sold for nominal sums to low- and middle-income shareholders.

Under the proposed Regulatory Agreement – which, among other things, would require third-party monitoring of all co-op operations – the city would seize control of the nearly 1,231 privately owned HDFCs. Not surprisingly, the proposals are being met with fierce resistance.

“Clearly, the city is attempting a land grab,” says John McBride, a co-op owner and member of the HDFC Coalition, an advocacy group. “These changes would penalize buildings that have worked hard to turn their properties around and followed the city’s rules for decades. It’s unjust, [and]shareholders are furious.”

Since its creation in the early 1980s, the HDFC program has allowed existing tenants of abandoned and foreclosed properties to buy their units at prices far below market value, initially as little as $250. The city also provided a significant real estate tax abatement through its Division of Alternative Management Corporation program (DAMP) to keep maintenance affordable.

HDFCs, however, have operated under a confusing hodgepodge of rules. Some have resale price caps; many do not. Income limits for new buyers also varied, from about $100,000 to $135,000. But with no restrictions on the purchasers’ assets, units at buildings that have been successfully rehabilitated have been selling at increasingly high prices, sometimes for seven figures.

While most HDFCs are healthy and strive to remain affordable, some 28 percent of them suffer from mismanagement and are in “serious municipal arrears,” according to HPD, unable to pay property taxes and water bills or keep their buildings in good repair.

A 113-unit, three-building HDFC co-op on Anderson Avenue in the Bronx is fairly typical of such distressed properties. “The building was falling deeper and deeper into debt with the city on its taxes and water bills,” notes board president Muhammed Suleman, who has lived in the property for nearly nine years. “We had fallen behind on the Local Law 11 work we had to do and on our obligations to the city. We weren’t cash-rich and we were very low on funds because the residents were falling behind in paying the maintenance.” The board is trying to work out a payment plan with the city.

“Unless we take steps to protect our stock of HDFC co-ops, we risk losing one of the most valuable sources of affordable homeownership in the city,” says HPD spokesperson Elizabeth Rohlfing. “The goal of the agency’s proposal is to get struggling HDFCs on solid footing, while ensuring the long-term affordability of all HDFCs.”

“They’re lumping us all together,” ripostes Richard James, a retired lawyer and board member at a stately Riverside Drive HDFC co-op where a unit sold in 2014 for more than $2 million. “Everything about this proposal – from taking away DAMP to the price caps and having outside monitors – is basically a breach of contract from our agreements with the city, and I think it’s inviting a lawsuit.”

This, in other words, is war.

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