Alerts

Tenant Harassment and Potential Lender Liability

Alerts / July 14, 2017

Tenant harassment cases typically involve disputes between landlords and tenants, with rent-stabilized tenants accusing landlords of attempting to bully them into vacating their apartments by using aggressive tactics such as constant buyout offers, disruptive construction or continued lack of maintenance. Recently, however, concern has been building over how culpable lenders may be when their borrowers engage in harassment to vacate rent-stabilized units, particularly where the loan terms are unsupported by a rent roll consisting of rent-stabilized tenants. Certain lenders, such as Madison Realty Capital, have faced increased scrutiny for what some, including New York State Attorney General Eric Schneiderman, deem predatory lending practices resulting in borrowers being pressured to vacate rent-stabilized apartments by whatever means necessary.

Interestingly, a bill introduced to the New York City Council in June of last year would require the Department of Housing Preservation and Development (HPD) to create and maintain a “watch list” of lenders who enable predatory ownership through their financial support. The proposed law would establish a temporary task force to study and recommend criteria to HPD for including lenders on this watch list and would require HPD to (1) publish the list on its website and (2) transmit the list to appropriate regulatory agencies. According to the New York City Council’s website, the proposed legislation was referred to the Council’s Committee on Housing and Building, where it remains. Tenant advocacy groups, such as Stabilizing NYC, support such measures and have generated lists of “target landlords” claimed to either engage in, or support through financial means, illegal practices against tenants.

Although it is not known whether the bill will be passed (and there is no statutory framework that would explicitly hold a lender liable for providing financial support to an owner), the introduction of the proposed law signals a potential shift in the lender-borrower relationship, whereby lenders may need to exhibit caution in respect of their underwriting of rent-stabilized projects under circumstances in which tenant buyouts are key to the project’s economic viability.

If you have any questions about this alert, please contact Gina M. Mavica at +1.212.589.4672 or gmavica@bakerlaw.com or Barbara A. Hayes at +1.212.589.4687 or bhayes@bakerlaw.com.

Authorship credit: Gina M. Mavica and Barbara A. Hayes

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