June 2016 Banking on Gentrification – new report on the banking industry’s role in predatory equity and legislative recommendations
Three 2016 City Council Bills, introduced by Council Members Torres, Garodnick & Williams work together to stop PE and bring the PE players out of the shadows.
This bill requires the Department of Housing Preservation & Development (HPD) to create and maintain a watch list (available on their website) for owners of multiple dwelling buildings (6 or more units) who are engaged in predatory equity practices. The watch list will have two categories: (1) High Risk, and (2) Moderate Risk.
An owner may be placed on the “Moderate Risk” list if the building in question has a debt service cover ratio (see UHAB one pager on this) of less than 1.05% and one or more of the following criteria applies:
- One or more open HPD/DOB violations per dwelling unit in the building.
- One or more open orders to correct underlying conditions.
- More than 5% of the units are engaged in active HP proceedings against the owner.
- Within the past five years, a tenant (or group of tenants) has filed a complaint against the owner (Housing Court, DHCR or other tribunal) for harassment and that complaint has not been dismissed as frivolous.
- The building has been “flipped” more than three times in the past five years.
An owner may be placed on the “High Risk” list if one or more of the following criteria apply to the building at issue:
- Has a debt service coverage ratio of less than 0.85%.
- More than 10% of the units are engaged in active HP proceedings against the owner.
- Within the past five years, two or more actions for harassment have been commenced (Housing Court, DHCR or other tribunal) and that complaints have not been dismissed as frivolous.
- Has a debt service coverage ratio of less than 1.05% AND one of the following applies:
- Three or more open HPD/DOB violations per dwelling unit in the building.
- Two or more open orders to correct underlying conditions.
Maintenance of the Watch List:
- By March 1 of each year, the Department of Finance will assist HPD by determining the debt service coverage ratios of each of the multiple dwelling buildings across the city.
- Members of the public will be able to notify HPD (through their website) of owners they believe should be put on the watch list. HPD’s commissioner will establish a protocol for tracking these suggestions and notify the submitter within 30 days whether or not the owner will be placed on the watch lists.
- If HPD determines the owner no longer meets the criteria to be on the watch lists, the owner will be removed within 10 days and the reason(s) for removal will be posted on HPD’s website for at least a year.
- HPD will create procedures an owner on the watch lists must follow if they wish to be removed.
This bill creates a rebuttable presumption (believed to be true until proven otherwise) regarding tenant harassment.
Debt Service Coverage Ratio as Related to Harassment
When a building has a debt service coverage ratio of less than 1.05%, the following allegations will be believed to be true and used to cause a tenant to vacate their apartment UNLESS the landlord can prove otherwise:
- Use of force and/or making threats that force will be used against a tenant;
- Repeated and/or extended disruptions of essential services;
- Repeated (usually 3 or more) frivolous court proceedings against a tenant;
- Removal of a tenant’s personal belongings from the apartment;
- Removal of the door to the tenant’s apartment
- The landlord unlawfully “offered” the tenant a buyout.
This bill requires the Department of Housing Preservation & Development (HPD) to create and maintain a watch list (available on their website) of lenders who provide financial support to owners engaged in predatory equity practices.
Creation of Lender Watch List Taskforce
- Purpose: to develop recommendations and criteria HPD should use in determining which lenders should be included on the Lender Watch List.
- Membership (9 individuals appointed by the Mayor – similar to RGB): two tenant advocates, two lenders and five public members (who have at least 5 years’ experience in finance, economics or housing and do not hold other public office).
- Hearings: the Taskforce must hold at least one public hearing per borough per year.
- Reporting to HPD: after the public hearings, the Taskforce must report its findings to HPD within one year of the effective date of this law.
- HPD’s Responsibility: HPD has 120 days after receiving the recommendations of the Taskforce to create and implement the standards /criteria for including lenders on the watch list (with the help of Dept. of Finance).
Info Available on the Lender Watch List: name of lender, address of the multiple dwelling at issue, the name of the building owner.
Sharing Watch List Info: each year, HPD will send the Lender Watch List info to the U.S. Comptroller of currency, the board of governors of the Federal Reserve and the director of Consumer Financial Protection Bureau and any other state or federal agency that oversees banking rules and regulations.