Seeking HDFC Advice

If you have statutory rent-stabilized tenants their rents are set by their leases
and the Rent Guidelines Board, and your board cannot assess them.

If they are shareholders, then they probably are ineligible for SCRIE

We are tenant shareholders in an hdfc co-op.

Why would being a shareholder make anyone ineligible for SCRIE? We were advised by HPD and UHAB that this was an option. Our original conversion documents specifically contain info on SCRIE.

SCRIE and DRIE extend not only to rent-regulated tenants, but to shareholders in Mitchell-Lama and other limited equity coops, so it makes sense that HDFCs would be eligible as well.

PS -- never believe a word UHAB says. They are your enemy. They are the enemy of everyone, except for their senior management.

Would you say the meetings were well-attended and successful? Did everyone seem to be on board with the underlying premise? Or were they just nodding to get you to finish up?

Since it's just 20 units, make this a personal effort to form real relationships with people -- don't just be the "expert" who contradicts a status quo that the residents have understood for years to be ok. Make some friends, and only then can you start to lay out the hard choices. Explain that you're really worried, and here's why.

Don't discount the idea of taking on more co-op debt, ill-advised as it may seem, to help smooth the transition to sustainable finances. 18 months is a relatively short time for a big increase in monthly payments. It may be that city-supported financing is easier to get at the building level rather than pushing individuals to claim housing subsidies one by one.

I think uptown_joe has good advice. But shouldn't you be consulting your building's lawyer? Even a poor HDFC building has to have counsel, presumably someone knowledgable about HDFC issues. The lawyer can explain this stuff to your fellow share-holders so you don't have to take that role. You said the board passed resolutions--these are therefore binding. Get the lawyer to explain this to everyone. If the building voted for change, it has to change.

HDFC, is everyone who lives in the unit an owner? Are some of these units still held by a sponsor or some holder of unsold shares?

The word tenant is a little vague (tenant because of the proprietary lease, tenant because of another lease [rent-stab/rent-control]).

Please advise.

Hi, thanks so much for the advice. A long-winded reply...

There are 15 tenant-owners, 2 ownership disputes brought by the current occupants that are in supreme court (the co-op's stance prior to our arrival in the building was that these individuals are renters), 1 housing court dispute about a violation of the primary residency clause. 2 rental units currently going for well below market rate, but rented to family members of shareholders who will of course be reluctant to raise the rent (one of these is also very far into debt at his current rent).

At the meeting there was agreement about the issue, but no one wanted to find a solution. They seemed to reject the idea of an increase, but when we explained the issue many individuals agreed with our logic. We offered financial statements for anyone to review, corroboration from UHAB about the potential consequences of continuing to spiral downwards, but no one took us up on the offer to look for themselves. There is no culture in the building that supports planning ahead.

We have taken a holistic approach to the increase - multiple meetings with a UHAB rep about the severity of the debt, strategies for the budget, and the need for a meaningful solution that will allow everyone to keep their homes and not lose their equity. We are not giving up and are currently trying the one-on-one approach with everyone, even though we have already singled out what programs we think they are eligible for and provided all necessary paperwork. I am starting to realize that no one understands their asset and feels that someone will swoop in the solve their problems - as people have done for them over the years. But the current problem is actually very urgent - with all of the ongoing court cases and resultant missing income since we cannot accept payment from the tenants with cases in supreme court, missing income from non-paying renters and receiving low rents to begin with, and a monthly deficit that we're running from having such a low maintenance. There was a period of time where the maintenance wasn't raised for over 20 years. Of course this comes as a huge shock.

If we keep going how thing are, without pushing through the increase, we will be out of money within a year and half - the money we subsist on now for oil, insurance, etc is from the sale of my apartment - and won't be able to buy heating oil for the following winter. The sale of my apartment and the previous apartment sold happened when the co-op was actually $5000 in debt in the middle of winter. This is not the first time they have had to take a drastic step in order to deal with their ongoing deficits. They thought the apartment sales would solve all their problems and are actually angry and many people ask where the money is - as if it hasn't been spent or isn't being spent to subsidize our operating expenses. They really just don't understand.

As far as making friends goes, it's not impossible. But there is a language barrier. And there is only so far you can go with elderly tenants who don't leave their apartments at all. In addition, everyone is related. There are only 3 families in this building. It's very easy for them to band together, vilify us, UHAB, HPD, our lawyers, our accountants, and whomever else tells them something they would rather not hear.

If the debt continues to increase, and we can't secure an increase, HPD won't have any interest in offering article 11 to a building that refuses to meet it's operating expenses at the very least. Same goes for a credit union loan. In order to earn the respect of the organizations that would ever want to help us deal with our debt, we have to start paying our bills before the debt buries us completely.

That was a lot. Any further thoughts are appreciated.

sorry, but why did you buy into this building???

I have one thought. you can email me at ali [at] dgneary [dot] com, and please put "streeteasy" in the subject line so I can find it.

ali r.
{downtown broker}

haha! we knew about the debt, we didn't know about many of the other factors, like everyone being related, or an utter unwillingness to plan ahead and deal with pressing issues accordingly. I suppose we're an hdfc cautionary tale, but all I can do now is try to turn it around and hope for the best. It's basically an unpaid part-time job for my husband and I.

Any possibility of existing lenders writing down or restructuring the corporation's debt? It's hard to avoid buying oil and insurance at market rates, and new debt may be impossible, but monthly debt servicing levels could be negotiable -- again, buy yourself more time to get the finances in order.

Here's a communications idea -- the overall budget amounts involved may be too large and long-term for everyone to comprehend well -- perhaps you could issue monthly cash flow reports for a while? One page per month, focusing on mundane operational details that everyone can connect to, and perhaps a column for "your share" so that part really hits home. Show the actual delivery, invoice and payment dates if you can. That way it's not just "where did all the money go"?

Regardless of all that, if the board will pass (or has already passed) a formal maintenance increase, start sending the bills in the new amounts, and tell people to at least pay what they were paying before. This way the arrears are at least shown as receivable assets of the corporation -- individual liabilities rather than a corporate operating deficit -- and the cash-flow position is presumably no worse. Alternatively you could also pass some sort of lump-sum shareholder working capital contribution requirement which also shifts some of the liabilities off the corporation's books, at least on paper.

If the maintenance increase will not pass, or it's reversed after next year's elections, you might consider stepping back a little and seeing if an actual financial crisis (e.g. impacting services) is a better motivator than your prescient but unwelcome warnings.

Last crazy thought -- if it comes to a full-on debt default in 2-3 years, position yourself to take over the building post-default in partnership with some financing that you've pre-arranged independently of the existing board, and be ready to play hardball with shareholders at that time. You don't have to own the building and turn all the tenant-owners into renters again, but if you have a rescue package lined up you could have a strengthened leadership position.

Are there machinations behind the scenes? Is there any possibility of selling the apts now rented out to relatives? Could this be what they're waiting for? In the meantime, I would prepare yourself for a winter without heat - maybe a few cold unheated days and cold showers next year will force the issue.

Brooklyn is not for sale!

uptown_joe Thanks for your advice. In the last week we've had some progress. The only shareholder that had successfully submitted a SCRIE application was granted a full rent supplement, which is awesome. We have been communicating with his daughter, which has made all the difference (she does NOT live in the building, an important thing to note). And 3 other shareholders have paid the increased maintenance. It doesn't look like a complete mutiny after all. We are working with our management company to address the other shareholder's concerns individually. And the idea about a monthly cash flow report is something we have been discussing and are planning on distributing. No one will read it, of course, but it's a good way to have a quick reference for that inevitable refrain. It's one small step in the scheme of things, but I hope this bodes well for our future.

nyc10023, There are almost certainly machinations behind the scenes. Everyone wants an apartment for their relatives. We are in litigation for two apartments with the children of other shareholders who think they deserve a super cheap apartment. No matter if the building is totally bankrupt! Not sure what they think they're buying into? Certainly not stability. Unfortunately there is a bizarre feedback loop with HPD and cutting off the heat. They don't address 311 complaints from co-ops any differently than they do with landlord-owned buildings. So when the heat is off, our shareholders complain to the city and the city issues us a violation. So they end up paying unwittingly for not addressing heat issues through the proper channels (ie, our management company). Despite our best efforts to explain this, they continue to call the city when anything goes wrong. It's VERY hard to make everyone aware of any consequences to nonpayment. When the heat is on, we pay. When the heat is off, we pay. No win.

HDFCofwoe, you need to present the information graphically. And don't assume your fellow shareholders understand the most basic arithmetic concepts ... certainly not percentages, for example. Razzle-dazzle them with pie charts, line charts, bar charts, all that crap. Just like in the increasingly failing world of white-collar American executive management.

Also, never forget that your neighbors live in the County of Kings.

alanhart, I know you mentioned earlier about not trusting UHAB. Can you elaborate?

We have had a mostly positive experience with them. They support our push for a maintenance increase. They are responsive. I think they are limited in their power to effect change, but it seems like they are there to support co-ops like ours as long as the board is committed and willing to put in the time.

UHAB is a great organization in theory. But they have no enforcement power and the reality is they will do whatever HPD tells them. Only bright spot is the city will never foreclose and put people on the street. Your management company should be keeping track of arrears and late fees or interest.

Here are some articles that may help you.
http://columbiaspectator.com/news/2013/11/22/when-boards-go-awry-anything-goes-affordable-co-ops
http://columbiaspectator.com/news/2013/11/24/buildings-low-income-housing-program-feel-effect-gentrification
http://columbiaspectator.com/news/2013/11/21/locals-weigh-future-low-income-homeowner-program

@HDFCofwoe, can you give an update? We are in a similar situation but slightly smaller scale -- 5 unit cop-op, did not raise maintenance ever, then seemed shocked (!?) that the bank account is dwindling.... No one wants to pay more but no one wants to curb expenses either. Separately, HDFC shareholders indeed can apply for SCRIE. But I am wondering how the accounting for that works. As I understand it, the city pays the SCRIE benefit to the co-op not the shareholder, and does so as an offset to the property tax. But the property tax obligation is shared by all shareholders (SCRIE and non-SCRIE alike). So seems difficult to track the benefit to the specific apartment. Also, what happens if the collective SCRIE benefits exceed the property tax? I could see that happening for our building, eventually, as shareholders age and become eligible. Our individual unit monthly maintenance is huge relative to our building property tax.