Montgomery Calls For State Investigation Of Foreclosed HDFC

2178 Atlantic Ave_1

State Sen. Velmanette Montgomery (D-Fort Greene, Boerum Hill, Red Hook, Bedford-Stuyvesant, Sunset Park, Gowanus, Park Slope) is demanding that State Attorney General Letitia James investigate a shady foreclosure at a Housing Development Fund Corporation (HDFC) property in Brownsville last October.

Senator Velmanette Montgomery

From the foreclosure crisis to predatory practices to City tax policy, homeowners in my district have been struggling for far too long,” said Montgomery. “The case at 2178 Atlantic Avenue HDFC raised red flags for me.”

Among the names as parties involved in the foreclosure process at 2178 Atlantic Avenue, according to Montgomery’s letter, was the city’s Department of Housing Development and Preservation (HPD), and the non-profit Urban Homesteading Assistance Board (UHAB). 

UHAB is one of the chosen HPD nonprofits that were given management rights with sweetheart deals as part of KCP’s lengthy Third Party Transfer investigative series — now in its third year.

HDFCs are a class of buildings created in the 1980s that gave home ownership co-ops to mainly low-income tenants when the fiscally struggling city wanted to offload the massive liability of decrepit buildings it owned after landlords abandoned them. In many cases, tenants bought the co-ops for $250, with some restrictions on not being able to sell units to buyers that are above certain Area Income Medians (AMIs).

Photo by Charlie Innis

While it was originally part of HPD’s fiduciary duty to work with HDFCs to keep them financially sound, the city agency has been seemingly targeting these properties for TPT in rem foreclosures. In late 2017, 40 percent of the over 60 properties targeted for TPT were HFDCs even though HFDCs represent roughly 1.5 percent of all residential property in the city.

But HPD maintains that they support all HDFCs, including the 2178 Atlantic Avenue property foreclosed last year.

We are absolutely committed to supporting HDFCs, and we will continue working with this property to find a solution,” said the agency in a statement. “HPD has been extremely active in working to address their financial issues for a number of years, and we have worked with our partners in the City Council on multiple occasions to offer a path forward, in addition to supporting these tenants in court,” said an HPD spokesperson.

In Montgomery’s letter to James’ office, she lays out the basic details of the foreclosure and subsequent deed transfer of the 2178 Atlantic Ave property, which occurred during a court-ordered redemption period.

The letter implies HPD had worked against the shareholders’ best interests. 

“The combined actions of HPD and the mortgage servicers over several years have made it impossible for the shareholders of 2178 Atlantic Avenue HDFC to reclaim their building despite their best efforts to work with HPD, elected representatives and local nonprofits. I am also extremely concerned that their mortgage servicer has taken improper actions to hinder the HDFC’s ability to obtain a loan and resolve the foreclosure,” wrote Montgomery.

The three generations of shareholders residing in 2178 Atlantic Avenue, a rent-stabilized, 16-unit building, have been fighting a foreclosure case since June of 2016.

The case stems from when the property’s tax exemption status expired in 2001 while resident shareholders were unaware. The shareholders worked with UHAB and the City Council to reapply for tax exemption in 2013, as their debts continued to grow to around $315,000, the letter states. 

In June of 2016, the City Council approved a retroactive tax exemption for between 2005 and 2016, which would have provided $325,000 of tax refunds, thus rescuing the shareholders from a significant amount of their debt. 

However, HPD withheld the refund and would not issue the sum until the shareholders had resolved the foreclosure case, according to the letter.

“This decision created a catch-22 by requiring shareholders to resolve the foreclosure action in order to access the very funds that would allow them to do so,” Montgomery wrote.

The shareholders tried to work with the non-profit group Habitat for Humanity to procure the funds needed to pay off their debts and satisfy the foreclosure judgment, but doing so quickly became more and more impossible. Between June of 2016 and October of 2019, the building’s mortgage servicer tacked on a glut of interest fees, appraisal fees, and other charges, raising the shareholders’ debts to $992,000

In October, the deed transferred to 2178 Atlantic Avenue LLC, a three-month-old limited liability company, even though the shareholders were in court attempting to settle the debt and reclaim their building.

Immediately following the transfer, the LLC took out a $1.5 million mortgage on the property.

“These actions do not appear proper and that is why I have asked the Attorney General and the New York State Department of Financial Services to look into their case,” Montgomery said.

A James spokesperson said her office is aware of this situation, and are in discussions with HDFC and their attorneys regarding the next steps.