Hundreds of Thousands of Co-op Residents Shut Out of State’s Rent Relief Program

“Staff at OTDA seem to be ignoring the plain meaning of the law,” said Senate Housing Committee Chair Brian Kavanagh.

Andrew Giambrone   ·   September 30, 2021
The Masaryk Towers, a Mitchell-Lama co-op in Manhattan's Lower East Side. | Department of Housing Preservation and Development

Several weeks after he submitted a completed application for pandemic rent relief in late June, Mitch, a longtime Hell’s Kitchen resident in his 60s, saw on the application portal that his materials were validated. But a few days later, it showed his application was “pending denial,” said Mitch, who asked to be identified only by his first name to protect his privacy.

So he began calling New York’s Emergency Rental Assistance Program (ERAP), a $2.7 billion effort to prevent evictions by paying off tenants’ debts with mostly federal money. He got different answers about his case each time he called, he said.

“Finally after five to six calls, I heard it had something to do with me living in a co-operative building,” he told New York Focus. “At that point I’m saying, ‘OK, the building is co-op, but I’m not a co-op owner, I’m just a renter.’”

Mitch contacted his state assemblymember’s office for help and was ultimately approved for the aid. Yet his story highlights a largely overlooked aspect of ERAP: It excludes New York’s hundreds of thousands of co-op owners, even though they’re usually treated as tenants in state law and some legislators say they intended the same for this vital program. (Owners pay monthly maintenance fees — about $1,700 a month for an average 800-square-foot Manhattan apartment, for example — and can be evicted by co-op boards for nonpayment or other issues.)

This has left many co-ops, especially low-income ones, struggling to pay their bills and maintain their buildings as the pandemic dampens the economy. While New York plans on launching a new fund to assist co-op owners this fall, it’s still awaiting authorization from the U.S. Treasury, which is also overseeing $46.5 billion in COVID rent relief nationally.

“The idea that [our residents] are cut out of a program that’s supposed to help people meet their monthly housing costs is a real slap in the face,” said Dave Powell, executive director of the Cooper Square Mutual Housing Association II, a limited-equity co-op of 21 buildings on Lower Manhattan’s east side. “The state is putting us in a very precarious position.”

State lawmakers appear frustrated with the Office of Temporary and Disability Assistance (OTDA), the agency administering ERAP, for excluding co-op residents. Senate Housing Committee Chair Brian Kavanagh, a key sponsor of New York’s rent relief legislation, said the agency isn’t carrying out the law as designed.

“Staff at OTDA seem to be ignoring the plain meaning of the law that the Governor and the legislature negotiated and enacted, without offering any legal justification, because they don’t want to use the program’s resources to pay for arrears accumulated by co-op residents who’ve suffered financial hardship during the pandemic,” Kavanagh told New York Focus in a statement.

“No Other Relief”

Unlike condominiums and other types of homeownership, co-operatives allow people to own shares in a building or group of buildings organized as a corporation. Shareholders occupy their homes under so-called “proprietary leases” that govern maintenance fees and owner rights, which sometimes permit subletting.

New York City has more than 328,000 co-op units, about half of the country’s co-op stock and far more than the city’s 116,000 condo units. At least 85,000 belong to roughly 1,200 limited-equity co-ops — three-quarters of them in communities of color — featuring strict income requirements.

While generally more affordable than condos, co-ops tend to grow in value less quickly, to be older, and to carry various restrictions set by their boards. Some, such as Housing Development Fund Corporation (HDFC) and Mitchell-Lama co-ops, are price-regulated to remain accessible to low- and middle-income buyers.

This model means co-ops can face financial trouble if even a few shareholders die or fall behind on monthly maintenance payments, or if commercial tenants stop paying rent. The pandemic has produced all of those outcomes, though it’s difficult to tell how distressed specific properties have become due to the lack of public data on co-op finances.

Some experts say with little government aid available for co-ops, New York’s ongoing eviction freeze and court backlog are compounding cash-strapped buildings’ money problems. Co-ops were made eligible for federal Paycheck Protection Program loans last December, but not every loan was forgivable and the program closed in May.

“There’s no other relief,” said Emanuela Lupu, a partner at local law firm Smith, Buss & Jacobs who represents co-ops and condos. “To make it even worse, this whole stay on landlord-tenant proceedings has literally crippled the co-op boards’ ability to enforce any rules.”

A Legal Disagreement

When New York lawmakers ratified ERAP in the state budget last spring, the program was expected to include co-op owners: As proprietary leaseholders who effectively pay rent in the form of maintenance fees and can be evicted, co-op owners are considered tenants under other state laws. The program opened June 1, and some co-op organizations encouraged owners to apply.

But even as it fumbled to distribute the aid, OTDA deemed co-ops ineligible. At an Aug. 10 legislative hearing, agency Commissioner Michael Hein said “federal guidelines” barred co-op owners from qualifying.

“If we can get a clarification from Treasury on that and they’ll cover more, we welcome that process,” he said, offering to “do a deeper dive” on the issue.

Nine days later, at another hearing, Hein told lawmakers the review determined ERAP didn’t cover co-ops, “and if we want co-ops to apply it would require additional legislation.” He also promised to connect Kavanagh’s office with state attorneys to discuss their findings.

But at a virtual meeting of the Brooklyn Mitchell-Lama Task Force on Sept. 23, Kavanagh told attendees he still hadn’t received any such legal analysis. “We have a difference of opinion, a legal difference, with the administration,” he said. “They’re just asserting they made this decision, that the law requires them to make this decision, but we think they’re just wrong.”

Harvey Epstein, a state assemblymember whose district overlaps with Kavanagh’s and contains many low-income co-ops, also disagrees with OTDA’s policy. He and others have pushed the agency to extend ERAP to co-ops, he said, but things are “kind of at an impasse.”

“Legislators including the members who helped draft the legislation believe co-ops are included,” he points out, “and we said that during the hearing.”

In response to detailed questions from New York Focus, OTDA spokesperson Anthony Farmer provided a one-sentence statement: “The Legislature did not include co-ops as eligible in the statute it approved creating the program.” The agency didn’t answer a follow-up question about its legal reasoning.

The ERAP statute doesn’t explicitly mention co-ops, but it covers people “obligated to pay rent in their primary residence,” among other criteria. The statute defines “rent” (by reference to another state law) as “the monthly or weekly amount charged in consideration for the use and occupation of a dwelling pursuant to a written or oral rental agreement.”

Although ERAP got off to a glacial start, disbursing no money until mid-July, the program had paid out about $586 million for 45,000 households by last Friday, according to OTDA. Another $1 billion had been earmarked for 80,000 households “cleared pending landlord verification” — a limbo critics say is partly due to tenant and landlord applications not being matched.

In a letter to Treasury Secretary Janet Yellen last week, Gov. Kathy Hochul requested additional funding for ERAP, warning that New York was receiving more than 9,000 applications per week and was on track to allocate “all available federal assistance by early October.”

Meanwhile, some co-ops are still feeling financial pain from the pandemic. John McBride, a member of the New York City-based HDFC Coalition, which advocates for HDFC co-op owners, said it’s “extremely disappointing” that HDFCs are blocked from ERAP while individual shareholders can claim a COVID hardship as a defense in court.

“When a low-income HDFC co-op cannot collect maintenance from every apartment, all the residents of the building suffer and shareholders could potentially lose their homeownership forever,” he said. “The HDFC Coalition calls for the immediate expansion of ERAP so that HDFC co-ops will not fall into foreclosure, causing many New Yorkers including families, senior citizens, immigrants and people of color to lose their homeownership."

Help on the Way?

Whether co-ops will receive federal rent relief remains unclear. Speaking on background, a Treasury official told New York Focus the department believes co-ops are more akin to condos than rental housing in most states, so owner-occupants aren’t eligible — though renters in co-op buildings are, assuming they otherwise qualify.

The official encouraged jurisdictions concerned about state or local law undermining the program to contact the department. Notably, Treasury’s publicly posted Emergency Rental Assistance guidance, which has been revised multiple times, doesn’t address co-ops.

As current ERAP funds dwindle, New York co-op owners may find hope in yet another federally financed program: the $539 million Homeowner Assistance Fund (HAF). The state submitted a required HAF plan to Treasury last month, and officials are currently reviewing it.

This fund would help co-op owners pay off maintenance arrears, and also provide mortgage and HOA assistance to homeowners, with up to $50,000 per household. New York affordable housing agency Homes and Community Renewal (HCR) is managing the rollout along with Sustainable Neighborhoods, a subsidiary of the nonprofit Center for NYC Neighborhoods.

“HCR is preparing the program so that once Treasury approval is obtained, it will open swiftly to assist low-income, socially disadvantaged homeowners at greatest risk of foreclosure and/or displacement,” a spokesperson for the agency said in a statement. More than 20 community organizations across the state are being enlisted to conduct outreach for the program once it goes live.

For now, though, co-op owners are being forced to wait — and some are getting tired of it. At the recent Brooklyn Mitchell-Lama Task Force meeting, one attendee said she didn’t understand why ERAP wasn’t available for people like her.

“Why are we just left out in the cold?” she asked.

Andrew Giambrone is a freelance journalist based in New York City. He covers politics, social issues, and cities. You can follow him on Twitter at @AndrewGiambrone.
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