New York State Comptroller Thomas P. DiNapoli today announced that an audit of a New York City Department of Housing Preservation and Development (HPD) loan program, meant to encourage landlords to rehabilitate affordable housing, found the program was not properly managed or monitored. HPD allowed landlords to forgo repairs they promised to make in exchange for low interest loans, leaving tenants in unsafe and unhealthy conditions. This is the second in a series of audits focused on affordable housing.
“Families who rely on affordable housing were put at risk because there was so little oversight of this important program,” DiNapoli said. “HPD allowed landlords to ignore required repairs. The agency needs to ensure that New Yorkers are living in safe and sanitary conditions.”
HPD’s Article 8A Loan Program gives low-interest loans — up to $35,000 per unit — to owners of certain rent-regulated buildings, Mitchell Lama developments and Housing Development Fund Corporation coops in New York City to correct substandard or unsanitary conditions. The loans also prolong the useful life of buildings occupied by low income tenants. In exchange, owners sign agreements to make repairs or fix violations at their own expense to bring their buildings into compliance with the city’s Housing Maintenance Code. The building loan contract describes the rehab work to be done and the costs covered by the loan. The Voluntary Repair Agreement and the Housing Repair and Maintenance Agreement list the violations and repairs owners agree to fix out of their own pockets in exchange for their loans.
DiNapoli’s audit reviewed the repair and violation removal agreements attached to HPD loans at 34 buildings with a combined 942 units. The seven owners of these buildings received $19.8 million out of the total $43.9 million awarded during fiscal years 2011 and 2012. The audit found violations and unsafe conditions remained long after the loans closed because HPD failed to check on whether owners honored their repair commitments.
DiNapoli’s review of the Voluntary Repair Agreements found the 34 buildings had a total of 1,806 housing code violations that were supposed to be corrected as a condition for receiving loans. As of Feb. 6, 2014, there were still 415 active violations. In some cases, three years had passed since the deadline by which the work to be completed. Of these, 93 were “immediately hazardous” Class C violations, such as peeling lead paint and inadequate heat or hot water.
Officials told the auditors that they followed up on whether landlords corrected violations at just 3 of the 34 buildings sampled in the audit. Auditors found that the staff who were supposed to monitor the agreements was not aware that agreements existed at the other buildings.
HPD was even more lax about checking on owners’ Housing Repair and Maintenance Agreements. Owners routinely ignored agreements to remove lead paint, install child window guards and remove asbestos.
In one case, the owner of 1889 Seventh Avenue in Manhattan received a loan of nearly $1 million in 2011 and agreed, among other repairs, to remove a peeling lead paint violation — classified by HPD as an “immediate hazard” — that dated to at least 2009. As of Aug. 2014, the lead paint condition was still not repaired, according to HPD records.
In another case, the owner of 941 Leggett Avenue in the Bronx, Quadrant LP, was supposed to remove a hazardous mold problem in a basement apartment that dated back to 2006. As of Aug. 2014, the violation was still open.
Missing child window guards were a problem that went unaddressed at several buildings. At another Quadrant-owned building in the Bronx, child window guards were supposed be installed by June 29, 2012. When auditors visited in February 2014, the guards were still missing. When later asked about the delay, HPD officials said the owner had assured them the window guards had since been installed but made no independent verification. The same building also had numerous violations for missing or broken smoke detectors.
DiNapoli’s audit found that among the building owners sampled, Quadrant LP seemed to get preferential treatment from HPD. The housing company consistently received loans at more favorable terms than the others. For example, HPD gave Quadrant almost $14 million in loans for 23 buildings, or nearly one-third of the loans given out in fiscal years 2011-2012 with a 1 percent interest rate, even though HPD guidelines call for 3 percent interest rates on 8-A loans. While other owners received loans below the 3 percent rate, only Quadrant was given the generous 1 percent rate. Quadrant also received higher allowances for contingency costs of $1 million, or 7.24 percent of their total loan. Finally, only Quadrant was allowed to use its loans to cover construction management costs and pay for assistance with bidding and project supervision.
DiNapoli’s audit recommended that HPD:
- Strengthen requirements to ensure only eligible owners get loans;
- Create written guidelines to determine loan rates, and justify in writing any interest rate below 3 percent;
- Create written guidelines for building inspections to ensure owners meet repair commitments; and
- Investigate the apparent preferential treatment given to Quadrant.
In a response, HPD officials acknowledged the need to improve the inspection process, said they enacted enhanced inspection procedures in late 2013, and denied that Quadrant received preferential treatment. The agency’s full response is available in the audit: http://www.osc.state.ny.us/audits/allaudits/093014/13n4.pdf.