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258 W. 118th St., one of over 300 HDFCs in the city experiencing some form of "financial distress."

This article is the first part of a three-part series looking at the challanges facing Housing Development Fund Corporation (HDFC) buildings in the city. Part two focuses on management problems in some HDFC buildings. Part three explores sales trends of HDFCs in Harlem.

In 1988, Archie McDaniels bought his apartment from the city for $250. Despite his modest income, "born and raised" Harlemite McDaniels became a first-time homeowner through a state program called the Housing Development Fund Corporation.

If he still owned his unit, McDaniels would be holding prime real estate in Manhattan—his building, 320 St. Nicholas Avenue, is a block away from bustling 125th Street. But in 2001, the city foreclosed on the building, citing hundreds of thousands of dollars in unpaid property taxes.

"We thought they were giving us a tax abatement, and when we found out we didn't have that…we were several hundred thousand dollars in arrears," McDaniels said. "But we were young and we didn't know. It was all through word-of-mouth, and nobody remembered."

McDaniels still lives in his unit, but he and his neighbors no longer own their homes. The building is now a rent-stabilized apartment run by a for-profit management company.

McDaniels' building was one of two HDFC buildings that were foreclosed in 2001 in Manhattan. Since then, the number of buildings foreclosed has been steadily increasing with each foreclosure round. In 2006, 10 HDFC buildings were foreclosed in Brooklyn. Earlier this year, 17 buildings, including five in Harlem, were converted into rent-stabilized apartments.

"It's going to happen more frequently to those buildings that have so much debt they can't get out of it," Ann Henderson said. Henderson is the associate director for co-op preservation at the Urban Homesteading Assistance Board, a nonprofit organization contracted by the city's Department of Housing Preservation and Development to provide training and assistance to residents of HDFCs.

Henderson said that many HDFCs set up in the 1970s and 1980s lack financial and management regulations and are accumulating enough debt to be noticed by the city. Since 1999, 59 HDFC buildings, including 15 rental buildings, have been foreclosed through the city's Third Party Transfer Program.

"It's going to be much more, unfortunately," Henderson said.

A Department of Housing Preservation and Development statement said that out of an estimated 1,000 HDFC co-ops in the city, about 30 percent have "some degree of financial distress" and owe tax or utility payments.

But the causes for financial distress are complex and heavily debated. Since HDFCs are technically independent co-ops, city agencies and nonprofits have limited control over how buildings are managed. And should the number of foreclosures continue to rise, the future of one of the city's largest low-income homeownership programs hangs in the balance.

Low-income home ownership opportunities like HDFCs help maintain affordable housing in Harlem, where housing prices have skyrocketed in recent years

"I advocate ownership because that's the only way you retain your community," Inez Dickens, city council member for Central Harlem, said at an affordable housing forum Saturday.

'Geared to kind of fail'

As New York City neared bankruptcy in the 1970s, thousands of buildings came under city ownership as landlords simply walked away from dilapidating properties.

In an effort to preserve the buildings and take the burden off municipal coffers, the city created a number of programs to transfer property ownership to tenants. Created in 1981, the Tenant Interim Lease program­—through which most HDFC co-ops were created—brought the fantasy of $250 New York City apartments to life for thousands of low-income renters.

Through this program, Urban Homesteading Assistance Board trains residents to manage their own housing co-ops. Once a building meets certain criteria—including timely tax and utility payments and evidence of proper corporate governance—the residents can purchase their units for $250. They receive a grant to renovate and can convert their rental apartments into personally owned homes.

Henderson estimated that about 30,000 people live in HDFC co-ops in the city, primarily in the Bronx, Brooklyn, and northern Manhattan, where most of the buildings were first abandoned.

But many early buildings lacked provisions to survive in the long term. Early HDFC buildings created before TIL did not receive any funding for renovations, leaving residents in run-down buildings that were no longer city-owned.

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"They were basically left to fend and fund improvements themselves," Henderson said. "The city should've provided more ongoing support for them."

Julia Torrence, a Harlem real estate agent specializing in low-income housing, said that TIL's two-year required renovation period meant that proposed co-op budgets—written before the renovations began—could be out of date by the time residents finally moved in.

"Most of the buildings in the program were geared to kind of fail," Torrence said.

Over time, HPD has created new regulations to alleviate some of the problems. HDFCs created after 2001 are required to submit annual financial and management reports to HPD. New TIL regulations will control housing appreciation in new buildings.

The program remains a preferred option for low-income homeowners, though there have still been concerns of rising prices in HDFC units.

"I'm a big fan of it," said Neal Baker, a resident and member of the board in the 270 Convent Avenue HDFC in West Harlem. "A lot of middle-income people have been priced out of New York City housing, and I think HDFCs serve a valuable purpose trying to keep rent and maintenance rates low or reasonable."

Henderson agrees that HDFCs are essential, although she acknowledged the need for reform.

"I just think [HDFCs need] to be structured differently than a rental building," she said.

Baker said that his building seemed to be headed toward serving middle-income residents. His building's income cap for residents sits at $60,000 per year.

"The TIL program is not perfect. The HDFC program is not perfect," Mark Matthews, asset manager for HPD, said. "But the shareholders have to elect a board, they have to be responsible for the board."

From tenant to owner (and back again)

Recently foreclosed HDFC buildings in Harlem had accrued hundreds of thousands of dollars in unpaid property taxes. In Central Harlem, the 23-27 W. 119 Street HDFC owed more than $220,000 in taxes when it was foreclosed in 2011. The 369 Edgecombe Avenue HDFC in Hamilton Heights owed more than $622,000 when it was foreclosed in 2011.

Tax records from before the foreclosure could not be found for 320 St. Nicholas Avenue, but McDaniels said that his building had "hundreds of thousands of dollars in [tax] arrears."

"Unless you nip it in the bud, it can spiral out of control pretty quickly," Henderson said, adding that the city charges an 18 percent interest on unpaid property tax. "Once you missed two or three tax payments it's almost impossible for operating income to catch up."

But increasing building income, whether to pay for taxes or utilities, means raising maintenance fees for residents who may not be able to afford them or understand their importance.

"They don't realize the maintenance pays for the building," Torrence said. "They still have a renter's mentality."

She said that it is essential to educate shareholders on the importance of financial management.

Once a building is foreclosed by the city's Department of Finance, the Third Party Transfer program assigns a "responsible developer" to restore and manage it. A 2010 HPD document soliciting developers described the program as a way to "preserve and expand the City's stock of decent and affordable housing, forestall abandonment and stabilize neighborhoods." The city does not take ownership of the building during the process.

Ingrid Faria, director of real estate development at the Community League of the Heights, a nonprofit third-party organization that manages 369 Edgecombe Avenue, said the buildings are better off under new management.

"People think that if they own the property they can pay as little as possible," she said. "The TIL program can be a good vehicle to do affordable housing—however…the tenants need to realize rents need to be consistent with the cost of repairs and cost of all the expenses of the building."

Tenants say that the actual process can be disorienting. Foreclosed buildings are first transferred to Neighborhood Restore, a nonprofit created by the city to hold on to and stabilize the properties for up to two years while developers are found.

"We've had changes of ownership three or four times in the past few years," Franklin Gaskin, another resident at 320 St. Nicholas Avenue, said. "I'm not aware of a lot of things that happen."

McDaniels said he is still trying to find out who currently owns his building.

Both residents say that there haven't been major differences between how the building was run before and after the foreclosure process—they just don't own their homes anymore.

"We were more comfortable when we had it in our name," McDaniels said.

Limited assistance

Because HDFCs are technically independent corporations, the city has little control or responsibility in handling each building's affairs. HPD, UHAB, and other nonprofits may provide guidelines and requirements when creating the buildings' bylaws and regulations, but individual boards and shareholders exercise the most power.

"It is advisory assistance—we don't have any regulatory position," Henderson said about UHAB's role with existing HDFCs. "We deal with these situations all of the time, but it does require somebody to come in and ask us to help…It's not our role to go into buildings and help them fight the board."

A statement from the Department of Housing Preservation and Development said the department's role is "to provide technical assistance and advise the boards to make wise decisions to ensure the building avoids high levels of debt, tax liens, and in the worst cases, foreclosure."

Harlem's Community Board 10 lists the maintenance of HDFCs as a priority on its website, but the board has limited power over the independent buildings.

"We volunteer time to help solve problems," Danni Tyson, a CB10 Housing Committee member, said. "But we don't have any legal strength."

"We've got to train the tenants…we have classes, UHAB has classes—if you really want to know, if you really want to be responsible, you'll come to the classes. How much do you want us to do?" Matthews said at the CB10 forum. "The fact of the matter is that the board is responsible for paying the taxes."

A certain number of nonprofits, in addition to UHAB, do provide degrees of assistance to "distressed" HDFCs, though representatives said that options are limited.

"At this point, the only thing we can do is getting a loan to help them lower their interest rate," Henderson said. "It's taking 18 percent (interest) and lowering it to 7.5 percent, so if you owe a lot of money there's not much that can happen."

Rachel Jaffe of Housing Conservation Coordinators, which primarily works with HDFCs on the West Side and in Lower Manhattan, said that constantly changing regulations regarding HDFCs mean that there aren't enough affordable legal resources for residents.

"There aren't very many not-for-profit organizations" that provide services to HDFCs, she said. "They can't afford attorneys who charge $150 an hour."

Wayne Benjamin, director of the Harlem Community Development Corporation—which provides capital development services and organizes workshops for HDFC residents—said that it is ultimately up to residents to come forward with issues and plans.

"The disappointment is the HDFC community has not turned out in force in terms of plugging into potential sources," Benjamin said.

Nevertheless, McDaniels said that his building's foreclosure could have been prevented if the city had alerted its residents of their financial situation earlier.

"I feel they gave us false information," McDaniels said about the tax abatements that he thought the building had.

A successful program?

At Saturday's affordable housing forum, Matthews said that the TIL program is no longer accepting new buildings. Instead, it will be replaced by a new program that aims to resolve many of the problems that current HDFCs experience.

But in Harlem, HDFCs could be the one way for residents to remain in the neighborhood as housing prices rise.

"There is still a great interest on the part of the tenants who want a great control over their homes," Henderson said. "These are where they live, these are communities, where they want to stay. And I think homeownership and co-op ownership have been very stable."

"I want everyone to own their apartment," Dickens said. "But the bottom line is that somebody has to take responsibility."

Matthews said that despite recent changes, there is still a great deal of work to be done to ensure the viability of current HDFCs. "We have a thousand buildings that we already have to deal with," he said.

This article is the first part of a three-part series looking at the challanges facing Housing Development Fund Corporation (HDFC) buildings in the city. Part two focuses on management problems in some HDFC buildings. Part three explores sales trends of HDFCs in Harlem.

Somala Diby contributed reporting.

Correction: An earlier version of this article incorrectly stated the name of a city agency. It is the Department of Housing Preservation and Development, not the Housing and Preservation Department. The Spectator regrets the error.

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Housing Development Fund Corporation affordable housing harlem Community Board 10 Department of Housing Preservation and Development foreclosures HDFC
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