Elderly and Disabled Tenants Win Suit Compelling Bank to Pay for Repairs

January 11, 2012, Brooklyn, NY— South Brooklyn Legal Services (“SBLS,” a
program of Legal Services NYC) and the Fifth Avenue Committee, Inc.,
today announced a precedent-setting State Supreme Court decision holding
that a mortgage holder can be held liable for maintaining building
conditions once a foreclosure is initiated and a receiver is in place.

In May 2011, six elderly and disabled tenants residing at 294 5th Avenue in Park Slope filed a motion after more than two years of living with deteriorating conditions since the building’s owner defaulted on a $1.85 million mortgage. In 2007, the owner had paid $1.65 million to obtain the property despite the fact that income from the rent-regulated units would not be enough to sustain the mortgage, let alone the needed maintenance and repairs. The mortgage holder, National Bank of New York City, later increased the mortgage to $1.85 million and also used the building as collateral on a separate $1.95 million mortgage.

The owner allowed the building to fall into disrepair, and in November of 2009, the bank initiated foreclosure proceedings. In 2010, the Court appointed a receiver who is charged with collecting rents and managing the properties; however, the income from rent collection was still not adequate to repair or maintain the building. The tenants were living with intermittent heat and hot water, no trash collection, an unsecured front door which allows vagrants into the building, and a roof in danger of collapse due to a fire which the tenants believe was caused by trespassers. According to the New York City Department of Housing Preservation and Development, the building currently has 109 open violations, including seven Class C, or “immediately hazardous” violations.

The decision by the Hon. Sylvia O. Hinds-Radix orders the bank to forward money to the receiver when the rent rolls are not sufficient to correct the repairs in the building. Significantly, Judge Hinds-Radix points out that if the property is not overleveraged, as the bank claims it is not, then the bank should recoup its money upon the eventual sale of the property.

“The court recognized that banks whose hands are dirty from issuing bad loans must assume responsibility for their speculative lending practices rather than using the appointment of a receiver as an excuse to continue to neglect residential buildings and their inhabitants. This case sets a precedent for banks to be held responsible for bad lending practices that harm our communities, and it serves as a deterrent for landlords who speculate on buildings rather than running them responsibly,” said Shira Galinsky, Senior Staff attorney in the Housing Unit at SBLS.

“Fifth Avenue Committee is pleased that Judge Sylvia Hinds-Radix agreed with the long-standing tenants of 294 5th Avenue that National Bank of New York City and its receiver are responsible for making much-needed repairs in the rent-stabilized building as it goes through foreclosure. The judge's decision makes it clear that when a financial institution lends irresponsibly, they should be the ones to pay the consequences, not the innocent tenants who happen to live in the property going through foreclosure,” said Michelle de la Uz, Executive Director of Fifth Avenue Committee, which has been working to organize many of the tenants involved.

“Unscrupulous lending practices can harm our communities, but requiring financial institutions to pay for the upkeep of these buildings will ensure tenants are not subjected to substandard living conditions,” said Rep. Nydia M. Velázquez.

“Too often, tenants suffer the consequences of lending and borrowing decisions they did not make,” said City Council Speaker Christine C. Quinn. “This ruling is a precedent setting decision that will hold irresponsible lenders accountable and provide much-needed relief to residents of distressed, multifamily buildings in foreclosure. Now, tenants can expect property repair and maintenance throughout the foreclosure process.”

“No New Yorker should live in dangerously dilapidated housing because a bank made a bad investment. The Supreme Court’s decision makes clear that when it comes to keeping foreclosed buildings in good repair, the buck stops with the bank,” said Public Advocate Bill de Blasio, who submitted an affidavit in the case. “Six buildings on my NYC’s Worst Landlords Watch List are currently owned by banks, but now those tenants have new leverage with banks to secure the repairs they desperately need.”

"Wall Street speculation wrecked our economy four years ago and New Yorkers are still feeling the effects – from high unemployment, to threats of foreclosure, to abandoned developments in our neighborhoods,” said City Councilmember Brad Lander. “Everyone is entitled to a safe and secure home, and this ruling is a victory not only for my constituents at 294 5th Ave, but for tenants across the city.  I am glad the State Supreme Court has recognized the rights of tenants in this instance and is holding irresponsible banks accountable."

"This decision is extremely important for the hundreds of buildings that are now in terrible condition as a result of banks making predatory loans on NYC's affordable housing stock,” said Dina Levy, Urban Homesteading Assistance Board’s Director of Organizing and Policy. “This decision should send a clear message to banks they will be held responsible for their lending practices."

The holding is the first full written decision of its kind. The motion was based upon the same legal theory as a 2010 case (Comm. 2006 v. NY Bronx I) in which the Court ordered the mortgage-holder for a portfolio of ten foreclosed-upon apartment buildings to immediately advance $2.5 million for the repair of emergency conditions threatening the health and safety of the 400 Bronx tenants who lived there.

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