Tenant Advocates Call on Fannie Mae to Ensure Safety, Affordability of “Predatory Equity” Buildings

On July 20th, 2009, tenants and affordable housing advocates including Legal Services NYC-Bronx held a press conference demanding that Fannie Mae find buyers who will repair abandoned buildings and keep apartments affordable for New Yorkers. The event was attended by Senator Charles Schumer, Congressman Jose Serrano and Bronx Borough President Ruben Diaz, Jr.

The press conference was held in front of a building currently in foreclosure that fell into disrepair after being “over-leveraged” with debt that the property could not sustain.  This is an example of a phenomenon that has been called “predatory equity,” in which landlords and investment partners buy residential multi-family buildings at an over-valued amount with the goal of driving out tenants with affordable rents and then greatly increasing the rents.  Because the buildings are rent-stabilized, rents cannot be increased substantially in a quick way without driving the tenants out via harassment or intimidation, or raising the rents illegally.

Legal Services NYC-Bronx represents tenants of many of these buildings in foreclosure, and we are moving to consolidate the cases to ensure that they are treated in a uniform way.  Because Fannie Mae now holds the mortgages, Legal Services NYC-Bronx on behalf of our clients is seeking funds from them to make repairs and provide services. Legal Services NYC-Bronx is also working with community organizers and the Urban Homesteading Assistance Board, which has a longer term goal of trying to ensure that an affordable housing provider takes over the buildings so that they do not fall into the same speculative real estate market that led them into neglect and disrepair.

The July 27th issue of City Limits Weekly featured in-depth coverage of the press event and the developing situation:

When Hope Sloan’s building on Clay Avenue in the
Crotona section of the Bronx went into foreclosure last year,
conditions that were already bad spiraled out of control, she says. The
landlord and management company didn’t answer phone calls or letters.
The supers were fired. Residents started buying cleaning supplies for
building maintenance themselves and took up a collection to pay a new
super.

The building where Sloan, 40, an unemployed administrative
assistant, lives was owned until recently by the private equity-backed
Ocelot Capital Group. When these Ocelot properties entered foreclosure
last year, government-sponsored financial giant Fannie Mae was left
holding the bag on a $29 million mortgage package it underwrote for
Deutsche Bank. Now 300 families live without effective management in
buildings suffering from thousands of serious housing code violations,
including collapsed ceilings and faulty electrical wiring. With Fannie
Mae preparing to auction the debt it holds on the 19 buildings – in
effect selling them – the city's Department of Housing Preservation and
Development says the sale's design could become a template for how the
city handles the disposition of other financially troubled buildings.

"We're seeing it as a test case," said RuthAnne Visnauskas, HPD's
assistant commissioner for new construction finance. Tens of thousands
of apartments around the city presently rest on shaky financial footing
and could end up in foreclosure like the Ocelot properties if owners
stop making debt payments. In cases where mortgages stand to be
transferred again, those involved all say it’s crucial not to sell to
yet another unreliable owner. Sloan joined with other residents and
activists in a rally on July 20 to tell Fannie Mae that a nonprofit
buyer is the better choice.

Read the rest of the City Limits article, "How to Structure a Good Purchase of Bad Debt."

More coverage:

July 28th NY Daily News: "Tenants stuck in dilapidated buildings as owners flee"

July 20th WABC-TV New York (VIDEO):  "Mortgage crisis hits landlords, tenants"

July 20th CBS 2 New York (VIDEO): "Residents Furious Over Decrepit Bronx Apartments"

July 20th NY1 (VIDEO): "Schumer Urges Lender to Unload Abandoned Bronx Buildings"

July 20th The Epoch Times: "Bronx Buildings Dangerous to Tenants"

July 20th Crane's New York Business: "Fannie Mae Urged to Abandon Bronx Mortgage Auction" 

July 16th New York Times:  "Struggling Landlords Leaving Repairs Undone"

Press release from the Office of Senator Charles Schumer