The NY Times front-pages a rent control saga so sad they could not bring themselves to report it fairly:
Widow’s Bankruptcy Case Poses Risk to Rent-Stabilized Tenants
After her husband died, Mary Veronica Santiago fell behind on her bills, and the creditors began to call.
So two years ago, she took refuge in bankruptcy, hoping to have her debts wiped away. But far from providing a fresh start and peace of mind, the Chapter 7 filing thrust Mrs. Santiago, 79, who lives in the East Village, into the center of a case that bankruptcy lawyers say poses a major risk to her and the millions of other New Yorkers who live in rent-stabilized apartments.
The issue, pending before the United States Court of Appeals for the Second Circuit, is whether a rent-stabilized lease can be treated as an asset in a personal bankruptcy, just like a car or a piece of land, and used to pay off creditors.
The trustee overseeing Mrs. Santiago’s bankruptcy thinks so. If that position is upheld, bankruptcy lawyers who are closely monitoring the case say it would make it easier for landlords to evict rent-stabilized tenants if they file for bankruptcy, even when, like Mrs. Santiago, they pay their rent. At a time when housing affordability and income inequality have been driving the debate in the mayoral race, the bankruptcy case could add another element of uncertainty to New York City’s efforts to preserve housing for people with low incomes.
Oh no! Don't throw grammy onto the street!
Relax. Although deeply buried, eventually the Times admits that no one wants the elderly woman to hit the bricks. What the landlord wants is for the son to hit the bricks come the day when his mother goes to her final resting place:
Mrs. Santiago has lived for 50 years in a two-bedroom apartment near Tompkins Square Park, in a neighborhood where unregulated apartments rent for thousands more a month than Mrs. Santiago’s rent of $703. Her main income is a Social Security check and, under normal bankruptcy proceedings, her lawyers said, she would have avoided repaying the $23,000 she owes because she had no assets.
“I got scared,” she said, noting that her creditors “threatened that they were going to take me to court.”
But as her case was nearing conclusion, her landlord stepped in with an offer to buy her rent-stabilized lease and produce the funds to pay off her debt. (Mrs. Santiago’s landlord is not among her creditors, but he was notified of the bankruptcy as a matter of course.) The bankruptcy trustee in charge of marshaling her assets accepted the offer, and that decision, challenged by Mrs. Santiago’s lawyers, has been upheld by both a bankruptcy court and a Federal District Court.
A HUGE skip, and...
The trustee in Mrs. Santiago’s case has proposed an arrangement in which the landlord would pay her debt, pay the trustee and his lawyer, and allow Mrs. Santiago to live out her years in her apartment at a similar rent under a non-rent-stabilized lease “with no succession rights” that could otherwise have allowed her to pass the apartment on to her 50-year-old son, a personal trainer who lives with her and helps support her.
Her lawyers opposed the proposal.
The Times offers this on the legal issue:
Now, for the first time, a federal appeals court is being asked to weigh in. The widow’s lawyers argue that a rent-stabilized lease is a public assistance benefit, just like Social Security or disability payments, and should be exempt from the bankruptcy estate. Treating it like an asset, the lawyers said in court documents, undermines the intent of rent-stabilization laws in New York designed to protect tenants deemed in need of assistance with housing.
“This is not what bankruptcy is about,” said Kathleen G. Cully, one of Mrs. Santiago two pro bono lawyers. “What’s next? Are they going to start going after food stamps?”
One of the original rulings on this case discusses the difference between other public assistance and rent control/stabilization. (The opinion is stamped "Not For Publication", so of course I had to. Blame Google.) The gist - rent stabilzation is a random benefit with no means testing, and in any case the "public assistance" clause refers to payments, such as disability or unemployment, not subsidies such as rent control. More on the law from this law firm. We should note that NY courts have upheld this approach in the past but the Times didn't notice or care for obvious reasons:
In the way of background, this is the third decision permitting a
rent-stabilized apartment to be sold by a Bankruptcy Trustee to a
landlord in the Southern District of New York. The other two cases are In re Stein, 281 B.R. 845 (Bankr. S.D.N.Y. 2002) and In re Toledano,
299 B.R. 284 (Bankr. S.D.N.Y. 2003). In both of these cases, the
debtors lived in luxury apartments just south of Central Park–171 West
57th Street, Apartment 3C and 230 Central Park South, Apartment 9/10B.
Many people will be surprised by these decisions, however the Bankruptcy Code and Rules seem to allow the result.
Luxury apartments? Screw 'em. The Times closes with more heartbreak:
The couple moved into their ground-floor apartment in a five-story brick building on East Seventh Street in 1963. Mr. Santiago was the superintendent of their building and of several others in the neighborhood.
The landlord is a limited-liability company whose owner, James V. Guarino, referred questions to his lawyer. The lawyer, Lawrence M. Gottlieb, said in an e-mail that the company “has no intentions of selling the lease or dispossessing Ms. Santiago or renting out the unit for market rent.”
At home, in the cluttered apartment where her family has celebrated weddings, birthdays and holidays, and where her ill husband died at age 80, Mrs. Santiago said she regretted filing for bankruptcy. Her lawyers have reassured her that she has a good chance of prevailing, but first thing every morning, Mrs. Santiago said, she checks her front door for an eviction notice.
“I’m afraid to find a white paper on my door,” she said with her head down, tearing up as she tugged at the edges of her plastic-covered chair.
So her lawyers could take the landlord's offer and leave her son with an uncertain residential future, or they could leave an old woman living in fear. That is a great job by the son, and how much rent is he paying his mom, anyway?
TO BE FAIR: It does seem that the landlord is being generous, or sensible - under the law, the landlord does seem to have the right to take the apartment promptly, which means that as a precedent for future cases rent stabilization winners are at risk. Left unanswered:
1. Could the son have been formally added to the lease (The answer is a clear "yes" for spouses, and probably "no" otherwise, but still...) ? That would have muddied the waters since his rights under the lease would not be subject to the bankruptcy claims.
2. What is the fair market value of the rent stabilization rights? The landlord is, in effect, getting out of the rent stabilzation morass by paying $23,000. But no one else could have bid more and then gained the legal right to the stabilized apartment. I am not sure what "fair" has to do with it or why fairness should make an appearance at this late stage of the process, but still - would people be happier with the result if the widow sold her rights for $50,000, paid off her creditors, pocketed the difference and moved out?
Of course, if this were a legal way to monetize the privilge of rent control lots of folks would declare bankruptcy just to cash out before moving out. What a tangled web we weave when first we practice to distribute random wealth transfers.
3. If the son were willing to pay creditors $700/month that would retire the principal in less than four years. He is planning to pay the landlord one day after mom moves on, yes? Or maybe he expects to take in roommates... hmm, I am not sure I want to know, and more aggressive reporting might have found out.