In the Matter of Kelley S. Boyd, Respondent,v.New York State Division of Housing and Community Renewal, et al., Appellants.BriefN.Y.June 24, 2014 COURT OF APPEALS OF THE STATE OF NEW YORK ------------------------------------------------------X NEW YORK STATE DIVISION OF HOUSING AND COMMUNITY RENEWAL Appellant, 232/242 REALTY CO. LLC, A/K/A UPTON REALTY, C-UPTOWN REALTY, ROBERT CANDEE, OWNER Appellant, -against- KELLY S. BOYD Respondent ------------------------------------------------------X INDEX NO.: L&T 110437/2011 APL-2014-00052 _____________________________________ BRIEF OF AMICUS CURIAE CAMBA LEGAL SERVICES, INC. IN SUPPORT OF RESPONDENT _____________________________________ JUSTIN R. LA MORT, ESQ., Of Counsel MADELINE LA FORGIA, ESQ. CAMBA Legal Services, Inc. Attorney for Amicus Curiae 885 Flatbush Avenue, 2 nd Floor Brooklyn, New York 11226 T: (718) 287-0010 F: (718) 287-1719 E: justinl@camba.org April 30, 2014 TABLE OF CONTENTS TABLE OF AUTHORITIES ..................................................................................... 1 PRELIMINARY STATEMENT ............................................................................... 3 INTEREST OF AMICUS CURIAE .......................................................................... 3 ARGUMENT ............................................................................................................. 4 I. THE FOUR-YEAR STATUTE OF LIMITATIONS DOES NOT REWARD WRONGDOING .................................................................................................... 4 A. Fraud is not Protected by the Rent Regulation Reform Act of 1997 ............ 4 B. Individual Apartment Improvements Cannot Be Determined by Hypotheticals ....................................................................................................... 5 C. The Legislative Intent Continues to Be to Protect Affordable Housing from Fraud .................................................................................................................... 7 II. ALLOWING FRAUD DESTROYS AFFORDABLE HOUSING ............... 9 A. New York City is Losing Affordable Housing to Fraud ............................... 9 B. The Harmful Effects of Lost Affordable Housing Have Lasting Consequences.....................................................................................................10 CONCLUSION………………………………………………………………….. 12 1 TABLE OF AUTHORITIES Cases Boyd v. DHCR, 110 A.D.3d 594 (1st Dep’t 2013) ...............................................6, 7 Cintron v. Calogero, 15 N.Y.3d 347 (2010) ..........................................................5, 7 Gilman v. DHCR, 99 N.Y.2d 144 (2002) .................................................................. 4 Grimm v. DHCR, 15 N.Y.3d 358 (2010) ......................................................... 4, 5, 7 Jemrock Realty Co., LLC v. Krugman, 13 N.Y.3d 924 (2010) ................................ 6 Thornton v. Baron, 5 N.Y.3d 175 (2005) ......................................................... 4, 5, 7 Statutes Rent Regulation Reform Act of 1997 (L. 1997, ch. 116) .......................................... 4 The Rent Act of 2011 (L. 2011, ch. 97) ..................................................................... 7 Reports and Studies Andrew W. Cuomo, Governor’s Press Office, Governor Cuomo Announces Settlement Curtailing Immigrant Tenant Harassment to Ensure Fair and Safe Communities for New York City Renters (January 15, 2014) ................................. 8 The Association for Neighborhood and Housing Development, The $20,000 Stove: How Fraudulent Rent Increases Undermine New York’s Affordable Housing (January 2009) ......................................................................................................... 6 Common Cause, “Moreland Monday” Analysis of REBNY Contributions Raises Serious Issues for Commission to Consider (August 5, 2013) ............................... 7 2 Furman Center for Real Estate & Urban Policy, Rent Stabilization in New York City (2012)............................................................................................................... 9 Janet Viveiros and Lisa Sturtevant, Center for Housing Policy, Housing Landscape 2014 (February 2014) ............................................................................................12 Joint Center for Housing Studies of Harvard University, America’s Rental Housing: Evolving Markets and Needs (December 9, 2013) ...............................11 Make the Road New York, Rent Fraud: Illegal Rent Increases and the Loss of Affordable Housing in New York City (August 2011) ..........................................10 Scott Stringer, Office of the Comptroller of the City of New York, The Growing Gap: New York City’s Housing Affordability Challenge (April 2014) ............9, 10 Thomas P. DiNapoli, Office of the New York State Comptroller, The Continued Decline in Affordable Housing in New York City (June 2013) .............................11 W. Dennis Keating, Landlord Self-Regulation: New York City’s Rent Stabilization System 1969-1985, 31 WASH. U. J. URB. & CONTEP. L. 77 (1987) ......................... 8 3 PRELIMINARY STATEMENT CAMBA Legal Services urges this Court to uphold the decision of the Appellate Division to remand to the New York State Division of Housing and Community Renewal (DHCR) to give the parties the opportunity to present evidence regarding the legality of the base rate rent. The Appellate Division’s decision reaffirms the rule that DHCR has an obligation to ascertain whether the rent on the base date is a lawful rent when there are indicia of fraud. A reversal of that rule or increased evidentiary thresholds regarding the challenging of unsubstantiated individual apartment improvements would promote wrongdoing and expedite the loss of irreplaceable affordable housing. INTEREST OF AMICUS CURIAE CAMBA Legal Services provides legal assistance to low income New Yorkers in the areas of housing, consumer, foreclosure prevention, and immigration law. CAMBA Legal Services has engaged in extensive litigation concerning fraudulent rent increases in an effort to prevent homelessness and enforce the rights of tenants. 4 ARGUMENT I. THE FOUR-YEAR STATUTE OF LIMITATIONS DOES NOT REWARD WRONGDOING A. Fraud is not Protected by the Rent Regulation Reform Act of 1997 The Court has recognized that the purpose of the Rent Regulation Reform Act of 1997’s (RRRA) (L. 1997, ch. 116) four-year statute of limitations was to “alleviate the burden on owners to retain paperwork indefinitely.” Gilman v. DHCR, 99 N.Y.2d 144, 149 (2002). However the RRRA was not intended to allow owners to commit fraud with impunity. Chief Judge Kaye wrote for this Court that it could not be the intention of the Legislature to “ignore defendants' fraudulent conduct and fix the rent at an amount likely soon to result in the apartment's permanent removal from rent stabilization, thereby rewarding the owner's wrongdoing.” Thornton v. Baron, 5 N.Y.3d 175, 181 (2005). The legislative intent of the RRRA was to “alleviate the burden on honest landlords to retain rent records indefinitely, not to immunize dishonest ones from compliance with the law.” Id. Four years later, DHCR failed to investigate allegations of fraud and this Court found that “where the overcharge complaint alleges fraud … DHCR has an obligation to ascertain whether the rent on the base date is a lawful rent.” Grimm v. DHCR, 15 N.Y.3d 358, 366 (2010). 5 That same day the Court held that restricting rent reduction orders to the four-year period would “thwart the goals of the Legislature” to “motivate owners of rent-stabilized housing accommodations to provide required services, compensate tenants deprived of those services, and preserve and maintain the housing stock in New York City.” Cintron v. Calogero, 15 N.Y.3d 347, 356 (2010). Thornton, Grimm, and Cintron have prevented fraud from remaining in the shadows by requiring examination when there is evidence of impropriety. Allowing DHCR to shirk its obligation to investigate when there are specified allegations of fraud would reward wrongdoing and thwart the goals of the Legislature in protecting affordable housing. B. Individual Apartment Improvements Cannot Be Determined by Hypotheticals Individual Apartment Improvements (IAIs) allow building owners to increase rent with no oversight unless the tenant files a complaint. Most IAI’s occur when an apartment is vacant so tenants are unaware that any IAI’s are alleged. There is enormous economic incentive to use IAIs “because, while most increases under rent stabilization allow only a moderate rise in rent, a 1/40 th 6 increase can allow huge increases, limited only by how much a landlord can invest to improve a given apartment.” The Association for Neighborhood and Housing Development, The $20,000 Stove: How Fraudulent Rent Increases Undermine New York’s Affordable Housing 4 (January 2009) available at http://www.anhd.org/resources/the$20,000stovereport.pdf. When tenants do challenge IAIs the investigation must be decided “on the persuasive force of the evidence submitted by the parties.” Jemrock Realty Co., LLC v. Krugman, 13 N.Y.3d 924, 926 (2010). In the present case, Respondent stated with specificity that the alleged renovations could not have cost the amount the building owner claimed and explained how she reached her conclusion. Boyd v. DHCR, 110 A.D.3d 594, 594- 95, 973 N.Y.S.2d 609, 610 (1st Dep’t 2013). In response, the building owner “never submitted any evidence controverting” Ms. Boyd’s claims. Id. at 595. The Appellate Division was correct in distinguishing what the owner “could have” done “is not equivalent to finding” what the owner actually did. Id. Allowing DHCR to ignore specific and informed allegations of fraud from tenants because of mere owner speculation will reduce affordable housing and will allow fraud to prosper. Any threshold requiring more proof of fraud from tenants such as engineers or architects would price out justice for the hundreds of 7 thousands of tenants most likely to be the targets of IAIs fraud. Specific information detailing renovations that don’t exist and testimony regarding the value of fixtures should be sufficient to require an examination. C. The Legislative Intent Continues to Be to Protect Affordable Housing from Fraud The Legislature has had abundant opportunity to respond to Thornton, Grimm, Cintron, and Boyd if the rulings had conflicted with legislative intent. Since Thornton the Real Estate Board of New York (REBNY) and the thirty-seven companies comprising its leadership contributed $43.9 million to state and local candidates, committees, and political action committees. Common Cause, “Moreland Monday” Analysis of REBNY Contributions Raises Serious Issues for Commission to Consider (August 5, 2013) available at http://morelandmonday.org/2013/08/05/rebny-contributions/. The Legislature, despite vociferous lobbying from the real estate industry and substantial time to act, has taken no action to show disapproval of the principle that alleviating administrative burdens is subordinate to the legislative goal of stopping the fraudulent theft of affordable housing. The Legislature and Governor have instead taken active measures to help reduce owner fraud. The Rent Act of 2011 (L. 2011, ch. 97) made it more difficult 8 to remove apartments from rent stabilization and lowered the IAIs rent increases for large buildings. Additionally, DHCR’s Tenant Protection Unit (TPU) has begun auditing owners who have failed to register new rents with DHCR or filed IAIs. The TPU audited approximately 500 owners and 1,100 apartments. From these audits over 2,700 buildings with 28,000 apartments were added back to the rent-stabilization rolls and $200,000 have been returned to tenants who were unknowingly overcharged. Press Release, Andrew W. Cuomo, Governor’s Press Office, Governor Cuomo Announces Settlement Curtailing Immigrant Tenant Harassment to Ensure Fair and Safe Communities for New York City Renters (January 15, 2014) available at http://www.governor.ny.gov/press/1152014-immigrant-tenant- harrassment. Abuse by building owners is not a new phenomenon. A 1987 law journal article succinctly described the failure of landlord self-regulation due to “[t]he economic incentive for landlord abuses … [being] overwhelming in a housing market like New York City. This is particularly true where gentrification indicates a strong demand that threatens the displacement of tenants unable to pay market rents. An effective system of rent regulation that protects tenants against exorbitant rent increases and displacement … demands active intervention by public agencies.” W. Dennis Keating, Landlord Self-Regulation: New York City’s Rent Stabilization System 1969-1985, 31 WASH. U. J. URB. & CONTEP. L. 77, 132 (1987). Active 9 intervention requires DHCR to fulfill its obligation to investigate where there are indicia of fraud. II. ALLOWING FRAUD DESTROYS AFFORDABLE HOUSING A. New York City is Losing Affordable Housing to Fraud New York City had a net loss of 213,173 rent regulated units from 1981 to 2011. Furman Center for Real Estate & Urban Policy, Rent Stabilization in New York City 2 (2012) available at http://furmancenter.org/files/HVS_Rent_Stabilization_fact_sheet_FINAL_4.pdf. The pace of deregulation is accelerating. A recent report by New York City Comptroller Scott Stringer found that from 1994 to 2012 New York City had a net loss of 152,751 affordable housing units from the rent stabilization system. Scott M. Stringer, Office of the Comptroller of the City of New York, The Growing Gap: New York City’s Housing Affordability Challenge 19-20 (April 2014) available at http://comptroller.nyc.gov/wp- content/uploads/documents/Growing_Gap.pdf. Seventy-four percent of the rent stabilized units lost over the last decade is due to high-rent vacancy deregulation and high-income deregulation with the vast majority from high-rent vacancy deregulation. Id. at 20. 10 The permissiveness towards IAIs and the evidence uncovered from the TPU’s audits led Comptroller Stringer to conclude, “that fraudulent activity may have expedited the loss of an untold number of rent stabilized units from the City’s regulatory system.” Id. at 27. Since IAIs information is not publicly available it is difficult to ascertain systemic fraud. A sample study by Make the Road New York found 45 percent of all units examined had rent histories show registered rent above the legal amount with an average monthly illegal rent increase of $211. Make the Road New York, Rent Fraud: Illegal Rent Increases and the Loss of Affordable Housing in New York City 13 (August 2011) available at http://www.maketheroad.org/pix_reports/DHCR%20Report.pdf. B. The Harmful Effects of Lost Affordable Housing Have Lasting Consequences This theft of affordable housing makes it that much harder for families to find a home. “As of March 20, 2014 the shelter population in New York City was 52,267, including over 22,000 children. These historic highs in homelessness are not part of a nationwide trend.” Stringer at 12. Even those with homes can barely keep them. Housing is considered unaffordable if rent consumes over 30 percent of household income and severely 11 rent burdened if over 50 percent. “In 2011, slightly more than half the City’s households had a rent burden that was considered unaffordable, and that share remained high at 44 percent even after government subsidies” while one in five tenants still had severe rent burdens after considering government subsidies. Thomas P. DiNapoli, Office of the New York State Comptroller, The Continued Decline in Affordable Housing in New York City 1-2 (June 2013) available at http://www.osc.state.ny.us/osdc/affordable_housing_3-2014.pdf. Creating greater obstacles to challenging illegal rents would have consequences beyond displacement and homelessness. Losing affordable housing to fraud substantially affects the individual tenants and the communities where they reside. “When households pay more than half their income for housing, they have much less to spend on other necessities that profoundly affect quality of life. For lowest-income households, high housing costs mean skimping on basic needs to the detriment of their health and well-being.” Joint Center for Housing Studies of Harvard University, America’s Rental Housing: Evolving Markets and Needs 32 (December 9, 2013) available at http://www.jchs.harvard.edu/sites/jchs.harvard.edu/files/jchs_americas_rental_hou sing_2013_1_0.pdf. Renters in the bottom quartile of income who do not live in affordable housing are forced to cut back on necessities such as food, transportation, health 12 care, and retirement savings. “Together, these four categories account for more than 60 percent of the difference in spending between bottom-quartile rents that are housing cost burdened and those who are not.” Id. These burdened households face rising housing costs while many “essentials—child care, education, food—are also rising at the same time that food stamps, TANF, Medicaid, and other social support programs for lower-income households are targets for budget cuts. The dynamic increases the pressure on lower-income household as they try to make ends meet.” Janet Viveiros and Lisa Sturtevant, Center for Housing Policy, Housing Landscape 2014 5 (February 2014) available at http://www.nhc.org/media/files/Landscape2014.pdf. CONCLUSION For all the above reasons, based on the facts and the law, the Court should uphold the decision of the Appellate Division and remand the matter to the DHCR for further investigation. Dated: April 30, 2014 Brooklyn, New York 13 Respectfully submitted, __________________________________ JUSTIN R. LA MORT, ESQ., Of Counsel MADELINE LA FORGIA, ESQ. CAMBA Legal Services, Inc. Attorney for Amicus Curiae 885 Flatbush Avenue, 2 nd Floor Brooklyn, New York 11226 (718) 287-0010