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September 27, 2007

DiNapoli: HPD Lapse on Program
Oversight Costs New York City

Audit Finds City Shortchanged on Neighborhood Homes’ Profit Sharing

New York City’s Department of Housing Preservation and Development (HPD) missed out on more than $750,000 of shared profits from its Neighborhood Homes Program due to lax accounting and oversight, according to an audit New York State Comptroller Thomas P. DiNapoli released today. In response to the audit, HPD officials said they had verbally authorized sponsors to retain these profits to offset cost overruns at other projects, though they had not verified the sponsors’ reasons.

“The Neighborhood Homes Program helps accomplish some great objectives: promoting home ownership and revitalizing communities,” DiNapoli said. “But HPD officials must do a better job of making sure the City gets its fair share. The program is funded with public dollars, and taxpayers have a right to know that those dollars are being spent effectively and efficiently. HPD should not leave tax dollars on the table for want of appropriate oversight.”

Under the Neighborhood Homes Program, the City sells one- to four-unit buildings it has repossessed to non-profit “sponsors” for $1. HPD lends the sponsors up to $50,000 per unit to help finance rehabilitation efforts. Once rehabilitation work is complete, the sponsors sell the buildings to qualified New York City residents. The sponsors are generally required to provide to HPD 25 percent of profits made from sales.

DiNapoli’s audit focuses on five sponsors that purchased 84 buildings between January 1, 2002 and December 31, 2005. During that period, HPD made approximately $14.2 million in loans available to the sponsors, who collectively made more than $4.3 million by selling 53 buildings at a profit. The audit determined that HPD deposited only $222,500 of the expected $980,700 profit share.

HPD officials largely agreed with the audit findings and are implementing the recommendations, which include:

  • Requiring profit-sharing provisions in all sponsor agreements;
  • Establishing procedures to document waiver of any agreement provisions;
  • Establishing fiscal controls related to the processing of shared profits; and
  • Reviewing all Neighborhood Homes Program sales to determine whether the city is owed a share of sponsor profits.

Click here for a copy of the audit and HPD's response.



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