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November 9, 2009


DiNapoli: Affordable Homes More Expensive Than Intended

Comptroller’s Audit Finds Pricing, Lottery Selection Irregularities in HPD Program

Real estate developers who sell homes through the New York City Department of Housing Preservation (HPD) HomeWorks program frequently charged higher than expected prices for affordable housing—and sometimes kept the difference, according to an audit New York State Comptroller Thomas P. DiNapoli released today.

“Public agencies and private developers should play by the rules, especially when tax dollars are being spent to renovate these homes,” DiNapoli said. “If families pay more than they can afford for these properties, homeowners are at risk of defaulting on their mortgage and neighborhoods might spiral back into the sort of urban blight that this program was intended to fix.”

The HomeWorks initiative sells clusters of vacant city-owned buildings, also known as projects, to developers for $1 each. The developers then renovate the properties and sell them at moderate prices to eligible buyers selected through a random lottery drawing. DiNapoli’s audit examined a total of eight such projects consisting of 113 buildings transferred to six developers between 2003 and 2007, and found that developers collected almost $2 million from selling affordable homes for more than the expected amount. In addition, the builders approved buyers who were improperly selected or ineligible for the program. The buildings were located in Brooklyn, Manhattan and the Bronx.

When the actual sale price of all buildings in a project exceeds the expected sale price, developers are obligated to return half of the excess amount to HPD. In five of the projects examined by the audit, the actual sale price was higher than the expected sale price by an average of $39,495 per building. As a result, developers took in $1.97 million more than expected, of which half--$987,374--should have been paid to HPD. Only $201,500 of that amount had been paid to HPD, leaving an apparent shortfall of $785,874.

The audit also noted that 45 percent of audited buyers did not meet the minimum income or down payment requirements, or did not have adequate documentation on file with the developers to support their eligibility. In one case, a buyer was able to purchase a Manhattan building for $680,000 with no tax return on file. Lottery applicants in Brooklyn and Manhattan projects were also routinely passed over for applicants with worse numbers. One developer passed over eight applicants with lottery numbers between 39 and 105 and contacted an applicant with lottery number 111, who was then sold the building.

DiNapoli recommended that HPD:

  • Review all sales in the program to recover any overdue fees from the difference in expected and actual sale prices;
  • Verify the developer’s additional costs, which is the basis for increasing the sale price of buildings in the program;
  • Formalize the documentation process for changing the sale prices of homes;
  • Develop new procedures for retaining the records of applicants who are not selected for HomeWorks buildings;
  • Review 17 potentially ineligible building purchases in the audit sample and take appropriate corrective action.

HPD officials agreed with the majority of the audit’s recommendations. While the department does not believe that developers owe any outstanding fees from the higher than expected sale prices, officials agreed to implement many of the other suggestions.

This audit is part of DiNapoli’s ongoing effort to ensure the appropriate use of tax dollars dedicated to affordable housing programs.

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