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OPTIONS FOR MITCHELL-LAMA CO-OPS

Options for Mitchell-Lama Co-ops

Dean Roberts, Norris McLaughlin

 

Some apartments are more highly prized than others, and this is especially true at Mitchell-Lama buildings when it comes to succession rights. When do succession rights come into play, and how are they different from inheritance?

In limited-dividend co-ops, which include Mitchell-Lamas, you have the issue of what happens to an apartment when a shareholder passes or gives up their tenancy. In a private-market co-op, that’s dictated by state laws and whether the co-op wants to let the family take over. In the unique world of Mitchell-Lamas, residents have the right to remain in the apartment after the shareholder passes or surrenders tenancy. And that’s where succession comes into play. Mitchell-Lama apartments are highly, highly desirable, and people will do a lot to win a succession claim to a rent-subsidized apartment. A two-bedroom on the Upper East Side that costs $700 a month is something people will fight for and do many, many odd things to get.

 

What exactly is a succession claim?

It’s basically evidence that you’ve co-occupied an apartment with the shareholder of record for the required period, normally two years. That you are a family member as defined by law, either as a blood relative or a nontraditional family member, cohabitating, sharing bank accounts and doing other things that show a familial relationship in some way.

 

Can succession rights get messy?

Well, to be frank, there’s a large incentive for fraud. If grandma lives in a three- bedroom apartment in Chelsea in a regulated co-op, there’s a big incentive for the grandson to move in and claim succession rights. One of my favorite cases was when, during depositions, the people who were claiming succession admitted that they had a big Irish Sunday-night dinner to discuss which of the nieces and nephews would move in with crazy Uncle Larry, and the family came to the determination who it would be.

 

If the grandmother said in her will that she leaves the apartment to her grandson and he didn’t live with her, could he still move in?

No. In Mitchell-Lamas you cannot bequeath an apartment. It has no legal effect. If the grandson doesn’t get a succession claim, he would get the equity refund, which would be given to him through the will. By the way, you cannot bequeath an apartment in a private co-op either. You can say you give the apartment to your grandson, but he has to apply to the board and be approved, just like any other incoming shareholder. If that person is turned down, then the apartment is sold, and they get the proceeds. 

 

Where are succession claims filed? 

It depends on where the Mitchell-Lama is and who regulates it. If it’s the city Department of Housing Preservation and Development or the state Division of Housing and Community Renewal, it’s almost invariably in court. The agencies very rarely get into the succession business. So a person puts in a succession plan application to the co-op, and if it’s approved, the co-op submits it to the DHCR or HPD. If everyone says yes, that person would be granted the apartment.

 

So when boards get an application, do they do an investigation, or just pass it along to the city or state?

Some co-ops will take any succession application, approve it and let the city or state make the final determination. Others will conduct a full and complete investigation. Is the person on the income affidavits? Do they have tax returns? Does the super know that they live there? Some co-ops take the succession process very seriously and review it very tightly. Others put little or no effort in it because they either don’t understand the process fully or they don’t care.

 

How involved do you think boards should be? 

I think co-op boards should at least understand the parameters of what succession is and what the consequences are. The big problem with succession is that you can get misallocation of apartments. I know several cases where a 28-year-old succeeded to a three-bedroom apartment while the family with three kids is still stuck in a one- or two-bedroom apartment. By granting succession, you’re in essence scratching other people off the waiting list. So the family who’s been on the waiting list for 10 years doesn’t get in because Mrs. O’Leary’s son, who’s living somewhere else, took over the apartment. That’s fundamentally unfair. 

 

Also, the co-op is very likely to be involved in litigation if they deny a claim. It’s usually an Article 78 appeal of the regulatory agencies’ denial, but the board will be pulled into this litigation. Again, the people seeking succession are highly motivated. If they spend $25,000 litigating to get an apartment that’s going to return them $300,000 in subsidized rent over the next 15 years, it’s a very good bargain.

 

What happens if a Mitchell-Lama apartment becomes available and nobody claims it? Is there a waiting list?

If there is, it’s handled by the regulatory agency. The person comes in, their application is processed, and the agency checks to make sure the person is qualified. If the agency approves, that person purchases the apartment, and it’s a fixed resale. And that’s what refunds to the estate of the former shareholder.

 

But shouldn’t the co-op be monitoring this waiting list? And who should do it — the board, the attorney or managing agent?

Well, the waiting lists are run and monitored by the regulatory agency, but that is a duty they do not always fully fulfill, in that they have limited resources. So the starting line would be the regulatory agency, but there is an incumbent duty on the board to be aware of these circumstances and to have control of them. You should always know what you’re dealing with and try to avoid needless succession fights. 

 

And when someone does file a succession claim, we counsel our clients to choose their battles. If somebody is clearly defined for succession and you just happened to hate them, the board should not get into that fight. Conversely, when someone is clearly submitting fraudulent documents, it’s just ethically and business-wise necessary to have that fight.

 

FROM THE COURTS 

March 8, 2021

 

Williams & Ga. Towers, HDFC v. Green, 2021 NY Slip Op 50192(U) (N.Y. Civ. Ct. 2021)

A co-op brought a holdover proceeding against Green based upon the termination of the lease as a result of the death of his grandfather, who was the tenant of record. Green claimed succession rights in this Section 8 HDFC and that he was the tenant’s “remaining family member” and was entitled to ownership of the apartment upon his grandfather’s death. The HUD handbook clearly states that succession is possible if the individual is a party to the lease when the family member leaves, but Green wasn’t. Neither Green (nor any of the other witnesses) could recall when he moved in or how long he was living there. Further, he admitted that he paid no rent since he was “just sleeping there,” and offered no proof that he primarily resided at the premises.

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