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More Landlords Found Scheming

It’s no secret that landlords throughout New York City have been quite vocal about their pandemic-related hardships lately, as tenants are unable or unwilling to pay their rent due to the ongoing public-health crisis posed by COVID-19. While much focus is placed on eviction moratoriums, rent and mortgage forgiveness, and the need for government intervention, Housing Rights Initiative (“HRI”), a nonprofit watchdog group, has recently discovered abuses in prior efforts to assist property owners -- and is claiming that many of them unjustly profited by flouting compliance with a local tax-benefit program.

Aaron Carr, founder of HRI, estimates that the Big Apple forgoes an estimated $1.5 billion dollars, each year, through its 421-a tax-benefit plan, which doles out incentives to owners constructing new housing.  In exchange for those tax credits, the units in those buildings are supposed to be subject to local rent laws, like rent stabilization. (Depending on the project, the tax relief can be for an extended period of time – in some cases 25 years.) However, Carr believes that many of the recipients of these credits have not been faithfully complying with the law, and has identified over 1,500 landlords who have made some significant missteps.

“Everyone is being screwed here -- the tenants who are being defrauded and the taxpayers who are paying into these fraudulent schemes. Taxpayers are not only being forced to subsidize bad tax policy, they’re being forced to subsidize tax fraud,” Carr said.

After its independent review of the allegations, Newman Ferrara LLP filed lawsuits against three NYC buildings – which house over 400 rental units -- and is alleging that over $20 million dollars in benefits were wrongfully procured, and that the owners have overcharged their tenants an estimated $10 million in excess rent. Roger Sachar, a senior associate with the firm, noted that one of the identified buildings was able to avoid roughly $2 million per year in property taxes.

According to the litigation filed in New York Supreme Court last week, landlords circumvented the governing requisites by offering financial incentives to their tenants upon lease signing, such as a month's free rent.  But the owners would then register the units with the State at the full, non-discounted rental rates -- which then gave them "cover" to illegally raise rents down the road. And because the governing administrative agencies (like DHCR) are unable to adequately police or monitor compliance, these shenanigans went undetected.  Until now.

“Almost every building we see has this problem or some variation of this problem,” said Lucas Ferrara [a partner] of Newman Ferrara. “[The government] should certainly be seeking to get money back, especially from the miscreants who fail to comply with the program’s requisites."

Source:  Daily News

Link here: https://www.nydailynews.com/new-york/ny-hri-suits-tax-benefits-20210127-d2vpg5jlzvgflgfaavx6nmz7g4-story.html