The City Council is considering a plan to take properties from negligent landlords who skip out on property taxes and endanger their tenants. The proposal is reigniting a debate over an earlier program that had a disproportionate affect on small homeowners of color.
Councilmember Pierina Sanchez, chair of the housing committee, said she will introduce legislation on Thursday to replace what she called the city’s “infamous” Third Party Transfer program. She said the plan will have a new name and will include guardrails meant to protect low- and moderate-income owners facing financial distress.
The original Third Party Transfer program allowed the city to foreclose on properties and turn them over to developers after owners fell behind on their taxes and failed to address serious housing code violations. The program was meant to hold landlords accountable for letting their buildings deteriorate but often stripped small homeowners of their properties without compensation when they owed modest debts.
A 2019 City Council review found that most of the properties included in the program’s last iteration were located in 11 neighborhoods, mostly in the Bronx and central Brooklyn. More than a quarter were low- and moderate-income co-ops. The city ended the program that year after policymakers condemned the disparities and a group of homeowners filed a class-action lawsuit challenging its constitutionality.
Sanchez said her new Housing Rescue and Resident Protection Act includes more outreach requirements to ensure homeowners are aware of the risk of foreclosure and will specifically target landlords who allow large apartment buildings to fall into disrepair.
“We know the old program absolutely did not work the way we needed it to and hurt certain communities,” Sanchez said. “This program fixes the mistakes of the past.”
In 2021, a city task force issued a plan to reform the Third Party Transfer program. It recommended increasing outreach to owners at risk of foreclosure and scrapping a 1990s provision known as “block pickup.” That rule allowed the city to sweep up several buildings surrounding a distressed property if their owners fell behind on taxes, even if the other properties weren’t distressed, exposing more homeowners to foreclosure. Under the old program, the city turned the properties over to developers and nonprofits to rehabilitate while preserving affordable rents.
Sanchez said she considered those recommendations — like eliminating “block pickup” — when drafting the new bill. She said the revised program is necessary as an ultimate enforcement tool against bad landlords who owe at least three years of back taxes and rack up violations.
“Without this, there’s no tool, no finality to a landlord who is neglecting their property year after year,” Sanchez said. “We’re talking about criminal levels of neglect. We’re talking about endangering the lives of children and endangering families within their homes.”
She cited the example of a 49-unit complex on Davidson Avenue in the Bronx, where an absentee landlord has accrued more than $25 million in unpaid taxes and fines while failing to address severe safety problems. Tenants have long complained about lengthy elevator outages, serious leaks and persistent mold.
Building residents rallied to reinstate the municipal foreclosure program in March with the ultimate goal of taking over the building with assistance from the city and a nonprofit group.
“That program would be really good for tenants to have the option of turning their living situation into a co-op or tenant-run,” building tenant Portia Anderson told Gothamist on Wednesday. “Tenants like us matter too even if our buildings look terrible. It’s not a representation of the tenants living there.”
But Sanchez’s plan faces some obstacles.
Ilana Maier, a spokesperson for the Department of Housing Preservation and Development, said administration officials “support new legislation to improve the Third Party Transfer program” but don’t think Sanchez’s plan includes enough of the 2021 task force’s recommendations.
An attorney representing homeowners who lost properties in the Third Party Transfer program’s last iteration said he thinks the new proposal is still unconstitutional, and will sue to block it if enacted.
“It’s terrible,” said attorney Matthew Berman. “They’re trying to continue to take properties without paying for it so they can gentrify the city.”
Berman cited a 2022 Supreme Court ruling that requires cities, counties and states to give property owners a chance to recover money the city receives from selling the home to a private developer that exceeds the amount of unpaid taxes and interest.
The new bill includes a provision to give any additional proceeds to the former owner. The previous program did not take a property’s overall value into account and compensate owners.
Homeowner advocates who agree with the legislation’s intent are nevertheless urging the Council and city officials to ensure property owners are aware of the risks, and have opportunities to pay what they owe.
“We have to ensure that at the forefront of this legislation, the city is prioritizing consumer protections, plain-language communication and sufficient resources so that New York’s homeowners can save their homes,” Center for NYC Neighborhoods Executive Director Christie Peale said.