Committee on Housing and Buildings, Preserving Affordable Housing and Third-Party Transfer Program Reform, March 2026

Rosa Kelly, Chief of Staff to Commissioner, HPD (00:00:00)

[No speech]on how—

Chair Pierina Ana Sanchez (00:00:06)

'70s, New York City was gripped by economic turmoil spurred by widespread disinvestment, fiscal mismanagement, and ultimately a financial and social crisis gripped our city. That crisis hit low-income New Yorkers and New Yorkers of color the hardest as widespread unemployment coincided with a rapid deterioration of quality of housing. Under the weight of these economic circumstances, many property owners resorted to widespread abandonment and disinvestment, leaving tenants to languish in buildings that lacked even basic necessities of a functioning apartment. Catastrophic unit loss cascaded across the city with 350,000 private housing units lost to abandonment and disinvestment in the '60s and '70s. By 1975, 3,000 units per month were being lost to abandoned— this economic turmoil via Local Law 45 of 1976, empowering the city to foreclose on tax liens for the first time. But this initial iteration of the— entitled to nearly 5,500 buildings totaling in 50,000 units. Becoming one of the nation's largest landlords. Yet the cost of rehabilitating and maintaining these properties was astronomical for the city, about $2.2 million per building then, which is close to $5 million in today's, today's dollars. That iteration of the MREM foreclosure program was untenable. And so in 1996, the city created or TPT, allowing the city to continue foreclosing on distressed properties in order to forestall further deterioration of the building stock and encourage tax compliance throughout the city, but with the properties transferred to an interim owner instead of the city taking title. Since the program was created in '96, there have been 10 rounds, but the program was put on hold in 2019. After the Round 10 transfers caused heightened media— brought heightened media attention to the program, and many called for reform. While the Third Party Transfer had successes during its nearly 30-year history, its administration was extremely problematic, as 2019 apparent misadministration of the program, with HPD both leaving out or being overly lenient on properties that should have been included in transfers. And foreclosing on properties that apparently should not have gone through the rounds. But today we're in a place where we have 8 years— 8 years have passed without a version of this in-rent foreclosure being used on distressed properties. And this has left HPD's enforcement apparatus hamstrung. Today there's nearly 10,000 buildings containing roughly 115,000 apartments that meet indicators of severe distress. Many of these owners own significant— owe significant sums in unpaid municipal charges. And according to the mayor's management report, nearly 900,000 serious violations were issued in FY24 alone, which is a 40% increase from fiscal year 2021. Emergency repair interventions have more than doubled in the last year. And the most important part of all of this is that behind these statistics people, like 2201 Davidson, where there were 1,000 open violations and $500,000 owed to the city. That owner has been arrested twice, but those tenants continue to languish. Families are living with collapsed ceilings, mold, lead paint, vermin infestations, failing elevators, and unsafe building systems. And I want to be clear that to us as councilmembers, these living conditions are unacceptable. And we— I certainly am tired of touring building after building where tenants are living in these inhumane conditions. To that end, today we renew the conversation on how to reimagine the third-party transfer program, a conversation started in 2019, continued by the TPT Working Group, and through multiple council hearings and roundtable discussions over the past several years. Intro number 657, now known as the Safer Homes Act, overhauls the problematic Third Party Transfer program to use the city's power of in-rent foreclosure in a manner that targets the worst of the worst buildings in our city while protecting and expanding homeownership opportunities. The old program included a block pickup provision where if one property on a block qualified for the program, they were all foreclosed. The new program eliminates this disastrous provision. The old program was found to include buildings not in distress. A 2019 council audit revealed that over 50% of properties selected in the, the 10th round of third-party transfer were not distressed. Now the new program will only pick up the worst of the worst through an indexing system. The old program had tenants claiming that there was no outreach until after the lawsuit— after the transfer, resulting in many lawsuits. The new program will have more stringent requirements so that all parties, including shareholders within a cooperative building and tenants, are notified of their rights. The old program resulted in racial concentration of transfers, Just 50% of round 10 properties were in 11 community districts, low to moderate income communities of color, out of 195 neighborhoods in our city. The new program has more rigorous outreach requirements and supports for owner-occupied properties, creating off-ramps that will be helpful for this problem. The old program attacked homeownership with an overrepresentation in particular of owner-occupied homes and Housing Development Fund Corporation cooperatives. The new program will create new opportunities for resident ownership, including a process that allows interested residents to partner with qualified third parties to submit an application for ownership, including former HDFCs that want to reconstitute. And finally, the old program did not require repairs in order to exit the program, only a payment or a payment plan, but the new program will require corrective action plans within evidence that work is happening. I want to thank all of the advocates who engaged with us on this bill draft and have provided thoughtful feedback on this program. This introduced bill will continue to be tweaked and finalized until it is the best version that we can get. And I invite members of the public to please testify today or submit testimony within the next 72 hours for the next— for the official record. Thanks also to the members of the public who have taken time out of their day to join us. I'm looking forward to engaging, and I'd like to take this opportunity to thank my team. Chief of Staff Maria Villalobos, in particular Deputy Chiefs of Staff Ben Ratner and Kim Castellanos, who put so much sweat and equity and work into this hearing today. Gerard Fernandez, Delynn Campos, Maria Jose Mares, Brenda Muniz, and Stephanie Kuzi. I would also like to thank the Housing and Buildings Committee staff, Senior Legislative Counsel Austin Malone, Legislative Counsel William Eck, Senior Policy Analyst Jose Conde, Policy Analyst Dirk Spencer, Finance Analyst Carla Naranjo, and Data Scientist Reese Hirota, Noah Schlossberg, and Mohammed Shadid. We called the roll so we know that all the council members are here, so I will now turn it over to our committee counsel to administer the oath. If you're here to represent the administration and you've signed a testimony slip but you're not currently at the dais, just please also raise your right hand. We'll do it all in one go. So please raise your right hand.

Committee Counsel (00:08:20)

Do you affirm to tell the truth, the whole truth, and nothing but the truth, and to answer all council member questions honestly?

Chair Pierina Ana Sanchez (00:08:26)

Thank you.

Rosa Kelly, Chief of Staff to Commissioner, HPD (00:08:32)

Good morning. Good morning. Do we want to pull the deck up? We'll just hang on the title page for a moment while I read the testimony.

Chair Pierina Ana Sanchez (00:08:54)

Should be up in just a moment. Okay.

Rosa Kelly, Chief of Staff to Commissioner, HPD (00:08:57)

Good morning, Chair Sanchez and members of the New York City Council Committee on Housing and Buildings. My name is Rosa Kelly, Chief of Staff to the Commissioner at the New York City Department of Housing Preservation and Development. I am joined today by my colleagues Lucy Joffe, Deputy Commissioner for Policy and Strategy, Annmarie Santiago, Deputy Commissioner for Enforcement and Neighborhood Strategies, and Carrie LaBotz, Associate Commissioner for Preservation Finance and Portfolio Management. We're also joined by colleagues from the Department of Finance and the Department of Environmental Protection. Thank you so Thank you so much for the opportunity to testify regarding Intro 657, proposed legislation to modernize the Third Party Transfer Program. The Third Party Transfer Program was created by the council in 1996 to respond to a critically distressed subset of residential buildings experiencing prolonged unpaid municipal debt alongside deteriorating conditions, years of unpaid property taxes, water and sewer charges and other municipal charges often signal deep financial distress that can lead to worsening conditions for tenants. Addressing these conditions is of utmost importance to the city. In addition to the tax enforcement functions of TPT carried out alongside the Department of Finance and the Department of Environmental Protection, HPD views the program as a key part of our broader enforcement and preservation toolkit to ensure that housing remains safe and livable for New Yorkers. HPD's broader work to ensure housing quality and preservation often begins with the Office of Enforcement and Neighborhood Services, or ENS, who work day in and day out to protect the health and safety of tenants by enforcing the housing maintenance code, promoting compliance, and preserving the quality of the city's housing stock. In fiscal year '26 through January 31st, ENS received almost 5,000 over 169,000 housing maintenance code complaints, issued nearly 460,000 violations to property owners, and cleared over 408,000 violations. We have strengthened accountability through initiatives like the launch of the second certification watch list, an enhanced enforcement program designed to combat violations that are falsely certified as correct by— corrected by property owners. We have also taken decisive legal action to ensure owner accountability, including announcing a $2.1 million settlement against A&E for serious violations of housing standards. At the same time, through the administration's rental ripoff hearings and ongoing engagement, we will be creating more opportunities for tenants to provide direct feedback on our code enforcement process, ensuring that Lived experience informs enforcement strategies and our housing policy. HPD works across multiple offices to support the quality and affordability of existing housing. Through HPD's Office of Neighborhood Strategies, programs like the Partners in Preservation initiative support tenant organizers to stabilize distressed buildings, strengthen tenant associations, and help residents remain in their homes. These efforts work alongside the Office of Development various loan and property tax incentive programs which support owners to make investments in housing quality while keeping affordable housing for current and future residents. This work is critical to HPD's mission and forms the backbone of our approach to ensuring housing quality. Taken together, HPD's enforcement, preservation, and financing framework supports the broader housing stock. However, there are a small number of buildings where years of unpaid municipal debt and persistent hazardous housing conditions indicate a deeper level of distress that cannot be resolved through standard enforcement or preservation tools alone. While the vast majority of housing is in good condition, there are a small number of properties that face financial and physical issues. We go to slide 2, please. I think it's the one with the pie chart. Thank you. Slide 2 shows that there are about 770,000 Class 1 and Class 2 residential properties, excluding condos, in New York City. Of these properties, about 70% of residential properties do not owe property tax or water sewer charges and did not have any hazardous or immediately hazardous violations issued from January 2023 to January 2026 that remain open. Of the 770,000 properties, approximately 26% owe property tax and water arrears totaling approximately $3.1 billion. 5% have B and C housing violations issued between January 2023 January 2026 that remain open, and only 2% have both tax delinquency and open recent housing violations. It is within this narrow slice of the housing stock, 2% of properties that have the most serious financial and physical distress. The third-party transfer program is designed to focus on a narrow subset of these severely distressed properties where other enforcement, outreach, or preservation tools have not resolved the underlying instability and where residents need housing stabilization. Unlike traditional foreclosure, properties that enter TPT are foreclosed on by the city and transferred to an interim owner, Neighborhood Restore HDFC, and then conveyed to a qualified affordable housing developer for rehabilitation and stabilization with HPD support. Through TPT, residents are able to remain in their homes with with continued affordability and rent stabilization protections. In qualified buildings, tenants who are interested and able to manage a cooperative housing development have the option to petition to become a limited equity cooperative after their building is rehabilitated. Since its inception, TPPT has stabilized over 7,500 homes in approximately 510 properties, improving housing improved quality and stability for about 15,000 residents. It has been a key tool reserved for the buildings most in need to stabilize distressed properties, protect residents, and preserve long-term affordability. In response to the concerns identified after the most recent round of TPT in 2015, HPD and City Council convened a TPT working group in 2019 with the purpose of eliciting ideas for operational improvements to ensure that the program was was properly focused and achieved its intended purpose to stabilize properties in crisis. That group included elected officials, tenant advocates, legal service providers, MWBE developers, property managers, and community-based organizations, with information provided by the Department of Finance and the Department of Environmental Protection. The working group released a report in late 2021 and recommended several important changes to the program. These included eliminating the statutory block pickup requirement in favor of a more refined selection process, which balancing both financial and physical distress and eligibility criteria, standardizing payment plans, expanding outreach in partnership with CBOs and elected officials, and exploring additional technical assistance for owners. We are very pleased that the council has reintroduced legislative legislation to modernize TPT, and many of the proposed changes reflect both the working group's recommendations and HPD's data-driven analysis. In alignment with working group feedback, HPD is proposing significant changes to eligibility and selection. We want to discuss these modifications in depth and provide some additional context on the characteristics of the properties that would potentially be included if the city were to commence around today. Move to slide 3, please. Slide 3 summarizes the proposed eligibility criteria. Under our proposed critical eligibility or the balanced model, residential properties would qualify if they're tax class 1 properties and cooperatives that have delinquent debt exceeding 3 years of their annual tax liability. Class 2 HDFC rental properties that have delinquent debt exceeding 2 years of their annual tax liability, or tax class 2 rental properties that have delinquent debt exceeding 1 year of their annual tax liability. Of the 770,000 residential class 1 and class 2 properties, excluding condos, less than about 1%, or 3,000 properties, meet that minimum eligibility criteria for TPT. Once eligibility is determined, we propose that the city identify critical eligible properties through an indexing system that would rank properties on the basis of municipal debt, as well as open Class B and Class C housing violations that were issued in the last 3 years. Each property will receive a score on these factors, which would then be multiplied such that the properties with the highest combination of debt and housing violations receive the lowest score. Properties will be selected in order starting from the lowest score for inclusion in the program. HPD proposes that the agency have the ability to determine the number of properties selected for a particular round and the frequency of a round. Move to slide 4, please. Slide 4 provides some illustrative data showing the characteristics of the top 200 and top 500 properties using the proposed selection methodology based on the data from November 2025. The size of a round may vary depending on what we learn through redemption rates and new components of the program as we continue to negotiate the proposed bill and conduct future rounds of TPT. Municipal charges range from $260 million to $312 million for the top 200 or 500 properties. Slide 5 shows approximately $625,000 to $1.3 million owed per property and $60,000 to $70,000 per unit. Slide 6. Demonstrates that recently issued unresolved violations range from 13,500 to 20,000 across the top 200 or 500 properties, averaging about 40 to 70 per property and about 4 to 6 per unit. The top 200 or 500 properties have $6 million to $11 million in emergency repair charges. Slide 7 demonstrates that nearly 25 to 35% of the top 200 or 500 properties are already in enhanced enforcement programs such as 7(a) or AEP, underscoring that these are buildings where prior interventions have not produced sustained correction. Slide 8. Slide 8 shows that proposed criteria demonstrated— excuse me, shows how the proposed criteria compared to the existing statutorily distressed definition. Overall, our proposed selection methodology results in properties that do have higher levels of municipal debt and housing code violations. On average, the critical eligible properties have 40% more debt and 2% more violations. The critical eligible model also identifies larger buildings averaging 30 units, meaning more tenants per intervention. The statutorily distressed method tends to identify smaller properties averaging 10 units, many of which are owner-occupied. Slide 9. Slide 9 demonstrates the critical eligible model also results in a more evenly distributed— distribution of properties across boroughs, whereas—— excuse me, whereas roughly half of the properties identified under the statutorily distressed method were concentrated in Brooklyn. Modernizing TPT is a key step to expanding our toolkit to stabilize distressed properties in New York City. By reforming TPT, the city can ensure that this powerful program focuses on the properties with the most delinquent debt and recent violations so that the buildings can be stabilized with improved housing quality for residents. At the same time, we want to flag a few areas of the current council draft that merit further discussion. On slide 10, we fully agree that owners, city council, and residents should be informed. We want to work with city council to refine the notice and outreach requirements requirements to ensure that interested parties are provided appropriate and actionable information at critical milestones. While HPD and the other agencies involved in administering the program have historically done extensive outreach to property owners, we propose to strategically supplement those current notices with the following: requirement that each agency involved in the administration of the program have a clear agency liaison identified on their website and in all required notices. We're going to add— we propose adding a second notice of possible foreclosure to the owners, continuing a notice to the property owner at commencement of the foreclosure action when delinquent taxes are filed with the court, and highlighting options which the owner can utilize to redeem their property and exit the action. Post-commencement, distributing the notice of foreclosure at the building, so in common areas and flyering around the building, in addition to notifying the counsel and providing a final warning notice to property owners with clear information about the outstanding violations and arrears, redemption options, agency liaisons, and the possibility to claim surplus. In addition to the added notices and ongoing outreach support from agency liaisons, This work will be supplemented by the Owner Resource Center, which can provide technical assistance support for owners and a website for owner access— for owners to access key information. Our goal is to provide clear criteria to building owners to be able to pay outstanding arrears, address housing conditions, and avoid foreclosure. As such, we recommend that payment plans be streamlined with standard payment options available to property owners. Simplifying payment options will make it easier for owners to understand and make it easier for agencies to provide good customer service. As property selection is proposed to be based on tax liens as well as property conditions, we also support redemption requirements that tie the resolution of arrears to the correction of hazardous violations so that housing conditions improve as part of any path out of TPT. Additionally, we recommend excluding vacant lots from the eligibility criteria. TPT is a tax enforcement program with the goal of housing stabilization for residents in these troubled buildings. Given limited city resources, the program should remain focused on supporting the preservation of housing for existing tenants. In fact, vacant land that was included in prior rounds of TPT had often consisted of small, difficult-to-develop areas and sites, underscoring that TPT is better suited as a tool for housing stabilization rather than development. Finally, the city will add a new process by which the owner of a foreclosed property can make a claim of surplus equity where it exists. At a time when so many New Yorkers struggle to find quality affordable housing, we must protect housing that already exists and work to improve conditions for residents living in buildings in crisis. TPT is a critical program to stabilize housing for New Yorkers, focused on stabilizing a subset of properties with the highest municipal debt and housing code violations. We look forward to continuing our work together to refine this legislation and deliver better outcomes for property owners, and most importantly, for the residents living in financially and physically distressed buildings. Thank you so much. We welcome your questions.

Chair Pierina Ana Sanchez (00:25:35)

Thank you. Thank you so much for your testimony and for all of the detail that you brought into this conversation today. My first question is if you could reiterate the differences that you outlined throughout your testimony between the critical eligible or balanced model and what we have in in the statute today?

Rosa Kelly, Chief of Staff to Commissioner, HPD (00:26:02)

Yeah, absolutely. I'll just, I'll kick it to Lucy, but first I'll just say that, you know, in partnership with the council, we proposed the reforms based on recommendations from the working group for that balanced model, the elimination of the block pickup, and this indexing of the worst of the worst for the highest municipal arrears and those B and C violations, I think really is a model that helps us target and make a more efficient and effective program.

Lucy Joffe, Deputy Commissioner for Policy and Strategy, HPD (00:26:35)

Lucy, thank you. So under the statutory distress model, we were comparing building value to the liens, and that was the— I'm sorry, hold on one second. Coming up here. And so we would— sorry, let me pick that up again. Under statutory distress, we were looking at both financial and physical characteristics up front and looking at buildings that had a greater percentage of the lien to DOF market value ratio. Instead, what we're going to be doing up front is now under critical eligible, there is a threshold that varies based on the type of building, and we're looking at the percentage of the outstanding money owed compared to the tax liability, and that increases the number of years of outstanding tax liability for comparison depending on the type of building. So for Tax Class 1, those owners would have to owe 3 times the amount of their annual tax liability. For HDFC rentals, it would be 2 times that tax liability, and for other rental buildings in Tax Class 2, it would be 1 times that tax liability. That's to be eligible for the program. Once eligible, Buildings still have to be selected, and when we go to the selection process, we're gonna be comparing, looking at both physical and financial distress. In testimony, we talked a little bit about that index. That allows us to ensure that we are picking up the worst of the worst buildings, those that have really high indicators of both physical and financial distress.

Chair Pierina Ana Sanchez (00:29:03)

Thank you. Um, got it. And that's, that's your critically eligible description is comparing, is contrasting to what is on the books today. But what about differences to what we have proposed in the legislation?

Lucy Joffe, Deputy Commissioner for Policy and Strategy, HPD (00:29:15)

What is changing? Um, thank you for that. So those changes would be similar, right, if we keep the statutory distress definition, then it will continue to look a little bit like the old program. If we move towards critical eligible, what we're really going to be doing is we have that two-step process, but really ensuring that we are getting larger buildings, buildings that are experiencing both significant distress on the financial and the physical side. We talked a little about the fact that we believe under this model we're going to get a more diffuse representation across the city and really isolating to the worst of the worst buildings, and that difference between statutory distress and critical eligible is a big part of that.

Chair Pierina Ana Sanchez (00:30:04)

Thank you. Thank you so much. And we, for the record, we do agree— I do agree on that distinction and trying to make sure that we target the worst of the worst. In previous testimony, HPD testified specified that you want complete discretion in determining the number of properties in each round. Is that still the agency's position, and what would prevent the agency from citing capacity concerns in the future and choosing not to include any buildings in a future round if we grant this ability?

Rosa Kelly, Chief of Staff to Commissioner, HPD (00:30:33)

I think it's more— thank you for the question, Councilmember. I think it's more so that in statute we, we can't commit to a minimum number of eligible properties that we could support or select in a future round without knowing the cost, the scale, and the impact of the new program. This is such a new proposal, and it would be frankly a little irresponsible for us to commit to something in statute. However, you know how strongly we feel that this is an incredibly important tool in our toolbox. We have seen how important preservation stabilization is in the larger the universe of these types of buildings. It's important that we get this right. We can also say that historically, approximately 250 to 500 properties have been selected for TPT rounds. And so, you know, we have some historical data that we are looking at and that we've used in our data analysis to help us grasp what the scale of this might be. And we will commit to communication and transparency transparency where we have an appropriate number that we believe the program can support. If we can do more, we will do more.

Chair Pierina Ana Sanchez (00:31:43)

Got it. Thank you. We'll continue conversations around that and how it ends up in the statute. Regarding exemptions, Intro 657 proposes a set of buildings that should be exempt from the new program, such as owner-occupied, tax- Class 1 properties, which differs from the proposed eligibility and selection criteria in your second slide. We also talk about those receiving SHE and D. What is HPD's stance on the proposed exemptions that we have in legislation right now? What additional exemptions should be included or considered that are not currently in the bill?

Lucy Joffe, Deputy Commissioner for Policy and Strategy, HPD (00:32:23)

Thank you for that question. You know, I think, if I may, I would say that a lot of the exemptions from both sides are getting at similar issues, just with some important differences. So we would exempt owner-occupied buildings that are meeting a lot of the criteria that you talked about. So folks who income qualify for STAR have the senior citizen disability homeowner exemption, disability homeowner exemption, exemptions relating to veteran status., and then the state circuit breaker income tax credit. We, and so that's structured just a little bit differently. Condos, we think it's important to exempt those that are already owned by Neighborhood Restore, one of their affiliates, and are making their way through the process. Those that are owned by the government or have been financed by HPD or HDC recently. Those with active tax with the New York City Trust, commercial or utility property, that's tax classes 3 and 4. We talked a little bit about the issue around vacant land, and then again, getting at the fact that this is a new program, we've done a ton of analysis together with the working group, but it is important that we allow this program to be able to evolve over time, including as we learn more about it, And so we think there should be some flexibility to be able to add on to those exemptions should they become necessary. Thank you.

Chair Pierina Ana Sanchez (00:33:56)

With respect to vacant lots and the agency's position that these should be excluded, what tools does HPD or does the city have on the books right now to deal with vacant parcels that we have just collecting trash and violations and vermin and rodents that are not seeing change from New Yorkers?

Rosa Kelly, Chief of Staff to Commissioner, HPD (00:34:19)

So I think I'll just start by, you know, again, when we looked at how to create a program that is most effective, and given limited city resources, we really do think that future iterations of this should focus on buildings where tenants are at risk of, you know, living in distressed conditions. And I will say also, leading into this, is that historically, when we have transferred vacant sites that are small and undevelopable, we haven't seen a ton of yield in terms of affordable units. In fact, of the total 11 lots that were transferred in round 10, 8 of which are actually in line for development, and they're currently creating 65 units of total new construction. It's not nothing. We definitely see that there is some yield there, but we also are very mindful of a programmatic focus for this program moving forward. So I'll say that in terms of the forward-looking part of the program.

Lucy Joffe, Deputy Commissioner for Policy and Strategy, HPD (00:35:20)

And not including vacant units in the program doesn't take away any of the city's other tools to deal with these. The owners still have all the same obligations. Just doesn't put those lots through this very resource-intensive program, given the limited results that we get from it.

Chair Pierina Ana Sanchez (00:35:41)

If the agency did not have to hold title to them or be responsible for them after transfer, would that, would that change the agency's position? I think we can talk more about that. Thank you. I'm going to ask a couple more questions and then I'll turn it over to Councilmember Epstein, who has a couple of questions of his own. Okay. With respect to enforcement, our office did a basic analysis of buildings that have cycled through HPD's AEP program. We found that nearly 400 buildings, more than 10% of the buildings in AEP's history, were repeat offenders, if you will, across multiple rounds of alternative enforcement program. Some were included in TPT before discharge— or excuse me, they were included before an AEP discharge and then fell back in 5 to 10 years later. The point being that AEP failed to stabilize these buildings over the long term, as you acknowledged in your testimony. For buildings like this where HPD's other enforcement programs do not seem to meaningfully be changing conditions for tenants, should we consider a fast track that condites these buildings through a revamped TPT program?

Rosa Kelly, Chief of Staff to Commissioner, HPD (00:36:53)

So I think that our proposed criteria really does a better job of capturing the buildings that are in those enhanced enforcement programs, as we saw in the data. And we, you know, know that we are setting these buildings up for success with the financial support support that is an underlying resource as part of the TPT program. So we really do believe that our proposed reforms hit at the goals that you just mentioned of capturing that universe of buildings that have failed to meaningfully stabilize through one of our enhanced enforcement programs. Thank you.

Chair Pierina Ana Sanchez (00:37:35)

And last one for me for this round. The missing middle that we've talked about offline, What is HPD's proposed solution for buildings that are pulled from, say, the lien sale because they are distressed, but are not then selected for a round of third-party transfer due to capacity constraints, budget, or whatever other reason?

Lucy Joffe, Deputy Commissioner for Policy and Strategy, HPD (00:37:57)

Thank you for that question. There has been this concern about buildings getting sort of stuck in limbo between the programs, and we do need to pull more properties properties from the tax lien sale for— that could be eligible for TPT in order to really end up with our correct selection pool, if you sort of think about the way we've indexed in the criteria. But we do recognize this concern. However, we think that it is largely going to be resolved if we match the criteria for the tax lien sale to critical eligible, so we're using the same language across. We'd be pulling the critical eligible buildings, though some of them might not actually end up getting picked up for TPT in that round, they'll then be eligible again for tax lien sale if things have not changed. And in the meantime, just to make sure that we have eyes on this building, HPD would be doing roof— will do roof-to-cellar inspections of these buildings just to make sure that we are appropriately monitoring them, and at all times they will continue to be subject to all of our enhanced monitoring programs. So it's not like they're going to be, you know, live in limbo. We will really make sure that these program— these buildings continue to get the observation and monitoring they need.

Chair Pierina Ana Sanchez (00:39:16)

So just to make sure I understand you correctly, are you proposing changes to the tax lien sale exemption process?

Rosa Kelly, Chief of Staff to Commissioner, HPD (00:39:25)

We're proposing that the existing definition of statutory distress, which right now also lives in the tax lien sale legislation that, yes, excludes properties from the sale, be modified to match our definition of critical eligible that we're proposing in this legislation, such that the two definitions speak the same language on both the tax lien sale legislation and our TPT legislation. That way, there is no middle. It's just that's the universe that's eligible for TPT. It's the same buildings that are eligible year after year. And like Lucy mentioned, once they're on that list, regardless of whether or not they are selected for a TPT round, we are aware of what they are, where they are, and we will be conducting roof-to-cellar inspections so that we have a good baseline understanding of how to monitor enforcement conditions.

Chair Pierina Ana Sanchez (00:40:15)

From year to year. Okay. And then you're saying that for properties that are removed from the lien sale but then not selected into TPT, they would get extra love and attention from the—

Lucy Joffe, Deputy Commissioner for Policy and Strategy, HPD (00:40:26)

We would do a roof-to-cellar inspection of those buildings and they would continue to be subject to any of our enforcement.

Chair Pierina Ana Sanchez (00:40:32)

So given that TPT in the past has taken 2.5 years or more to complete a transfer from the time of selection to the time of transfer, transfer, how often would, would HPD anticipate staying on top of these properties?

Lucy Joffe, Deputy Commissioner for Policy and Strategy, HPD (00:40:48)

Well, really depend on complaints that we receive from the building. We'll make sure to do a roof-to-cellar inspection, and then if things start to get worse, we expect that we will be receiving complaints from the building, and we'll make sure that we have folks out there as we otherwise would. The timing of the tax lien sale and TPT, right, could vary in a given year.

Rosa Kelly, Chief of Staff to Commissioner, HPD (00:41:10)

And I'll just add to that that this is the same universe of buildings that we work with the council on and are actually probably known to you, such, and similarly, they are known to us. We are always happy to work in partnership with council members who have some of these types of buildings in their district. Yeah, I'm thinking of Davidson in your district, Chair, that we you know, had a lot of outreach and a lot of back and forth on that. That's pretty typical of kind of the worst of the worst of these kind of buildings. And so we do expect that these are not going to be unknown to us.

Chair Pierina Ana Sanchez (00:41:45)

Thank you. I'm going to turn it over to Councilmember Epstein before coming back.

Committee Counsel (00:41:50)

Thank you, Chair Sanchez, and, and thank you for being here. Just, just following up with the chair said about like relationship with the council, if the council member or local community-based organizations wanted to flag buildings that are, should be priority buildings. Where in the legislation do you see that as a priority that we can, because the criteria might be some objective criteria, but on the ground you might see something happening very differently that we wanted to highlight a building in a, to move that along quicker.

Rosa Kelly, Chief of Staff to Commissioner, HPD (00:42:19)

Yeah, absolutely. So you're right, we have put forth what we really need to be objective criteria that in some ways remove removes the discretion. But that being said, I think, you know, we do have a relationship with many council members around some of these more problematic buildings. Like I've said, the worst of the worst are not unknown to us because we have been out for so many times to respond to open violations. Once we get the municipal arrears, we will have a sense of what is included in the universe. But I think we always welcome a partnership with council members who want to flag buildings for us to take a look at. But again, the objective criteria for inclusion in the program is intentional.

Committee Counsel (00:43:07)

I only have 5 minutes. I don't want to cut you off, but I want to push on that because I think what you're saying, it could be objectively saying, hey, there's a 7A pending. Hey, the council members flagged it. Hey, community-based organizations, those can be objective criteria too. They're just not there, so why not include those?

Rosa Kelly, Chief of Staff to Commissioner, HPD (00:43:27)

Well, this is a tax enforcement program first and foremost. So that—

Committee Counsel (00:43:31)

Well, it's pulling out of a tax lien sale to do a foreclosure to get a building that is distressed because you need repairs and taxes into a new program because tenants are suffering. So it's not just tax foreclosure. It is because there's violations as well.

Rosa Kelly, Chief of Staff to Commissioner, HPD (00:43:46)

Yeah, absolutely, and that's what the balance model is really meant to get at. I think that you're absolutely right. On top of that minimum eligibility that we've described here of buildings that have outstanding arrears such that they would be eligible for this tax enforcement program, and they have outstanding violations, hazardous violations, that would mean that they are indexed to be inclusive of our model. We are happy to hear from council members of that universe of buildings which ones are most problematic, which ones are you getting the most outreach on.

Committee Counsel (00:44:18)

But would you prioritize those buildings?

Rosa Kelly, Chief of Staff to Commissioner, HPD (00:44:20)

We would not. Okay.

Committee Counsel (00:44:21)

We are in our proposal—

Lucy Joffe, Deputy Commissioner for Policy and Strategy, HPD (00:44:23)

I want to go to a different line of questioning. Not for TPP, but they would absolutely be prioritized for some of our other enforcement programs.

Committee Counsel (00:44:30)

This is a limited program in that way. So I want to talk about the tenant ownership model here. The tenant ownership model seems very weak to me. It doesn't allow— I've worked on TPTO buildings that still haven't moved to tenant ownership, you know, 30 years later. I'm wondering how can we guarantee that tenants who are agreeing to do this will, at the end, as long as they comply with the obligations that they have, ensure that those tenants will move into an ownership model?

Carrie LaBotz, Associate Commissioner for Preservation Finance and Portfolio Management, HPD (00:44:55)

Sure, thank you for that question. We are happy to support in this new legislation the opportunity for HDFC co-ops —Not HDFCs.

Committee Counsel (00:45:02)

I'm talking about buildings that are in TPT that we want them to become tenant ownership buildings, that those buildings will actually guarantee to be transitioned to tenant ownership. Because right now you're transferring it to a third party with no guarantee, even if the tenants comply, that those units will be turned over to the tenants as a cooperative.

Carrie LaBotz, Associate Commissioner for Preservation Finance and Portfolio Management, HPD (00:45:20)

So there's a few places that we're supporting tenant ownership. That is allowing HDFC co-ops to reconstitute, as well as providing providing the opportunity for buildings that are rentals to be able to petition in. The buildings must first and foremost meet the minimum eligibility criteria to petition. We will provide notifications to these buildings to let them know what that criteria is.

Committee Counsel (00:45:42)

What guarantees tenants the ability to get their buildings if they agree with a go-to-within third-party transfer to ensure those buildings become ownership buildings? Tenants must meet— the building must meet the eligibility criteria. What guarantees does HPD put into place to ensure those buildings will become tenant ownership? Part of our criteria.

Lucy Joffe, Deputy Commissioner for Policy and Strategy, HPD (00:45:59)

We're going—

Committee Counsel (00:46:00)

we have clear criteria for those standards of housing.

Lucy Joffe, Deputy Commissioner for Policy and Strategy, HPD (00:46:01)

So if tenants comply, what— And these are based in part on some of our experiences with the past with some of the very buildings that you've struggled with. We know that if tenants are going to take over some of these formerly very troubled buildings, they have to be set up for success. So we have, from this work that we've been doing, worked to identify what is it that's going to really set every one of those tenants up to to be successful in that building, and that's the starting point here. And that's where HPD can promise you that when we're working with these buildings, if they can meet that criteria, that we're going to help them, be able to help them get into that ownership.

Committee Counsel (00:46:31)

Why not just do a process where they go into tenant ownership as they meet those criteria instead of having a third party who can hold it up for 20 years to ensure as long as they meet their criteria, they're doing their classes, they're doing the training, they can have a third party monitor to oversee them by not Why not give tenants the power to have ownership as an opportunity to guarantee that they will be able to move those buildings into ownership instead of saying, "Tenants, you're going to have to do this work, but then you're going to have to rely on this third party to agree to transfer them, and there's no guarantee HPD or anyone else can force them to turn it over to you." We don't anticipate that this is going to take 20 years.

Lucy Joffe, Deputy Commissioner for Policy and Strategy, HPD (00:47:08)

We believe if the tenants are well set up, we will be able to facilitate these transactions. Incredibly troubled buildings. We've been testifying to the fact that they are the worst of the worst. It does mean that we owe it to those tenants to make sure that that building is ready. We're devoting lots of resources, including through the Owner Resource Center, through other parts of HPD, to make sure that we are working with everyone involved to make this program really successful. We'd be happy to offline with you about particular buildings that you're concerned about, but we do believe that the combination of factors, both the resources the agencies are putting towards this, the standards that we've set out for tenants to be successful, and our general interest in supporting this means that we are going to be able to do this and better than we've done it in the past.

Committee Counsel (00:47:52)

It just sounds like there's no guarantee that tenants will have if they commit to doing all their trainings and following through everything that they can guarantee through this process legislatively to get ownership of the building, and you're saying you're going to provide resources and you're saying there's trouble building. I know I represented many of these buildings in my career to help people become tenant ownership, to then have a nonprofit refuse 5 years later, 10 years later to even sell the building to the tenants, which leaves the tenants extremely frustrated. So I want to hear why we— what can we do to guarantee these tenants tenant ownership?

Carrie LaBotz, Associate Commissioner for Preservation Finance and Portfolio Management, HPD (00:48:26)

We're going to be providing clear timelines and milestones for achieving tenant ownership. We know we've had buildings in the past where there have been timing issues. Part of what we'll be providing programmatically is ensuring that we have those clear timelines laid out so both the tenants and the owners and HPD understand what milestones they have to reach for tenant protection.

Committee Counsel (00:48:43)

Why couldn't we do that statutorily then instead of just waiting to have you through rulemaking create those timelines?

Lucy Joffe, Deputy Commissioner for Policy and Strategy, HPD (00:48:52)

We could talk more about what you're looking for in terms of what that would look like. We don't see this as this as a lack of guarantee. We see this as we are going to map out the program and make sure that it works for everyone, and we're happy to offline on some of these details if it doesn't seem like it's going to achieve what you're looking for.

Chair Pierina Ana Sanchez (00:49:09)

Thank you. No, and I just— to follow up on Councilmember Epstein, if I understand you correctly, and please cut me off if I'm not, it does seem like HPD does have criteria that tenants need to go through and, you know, many hoops to jump in order to become a cooperative, but then at the end, even if they've met all of these criteria, it's still up to HPD's discretion whether or not to accept those criteria, or at least that's how it comes across. And so I think we're asking for clarity, and I join Councilmember Epstein in wanting that clarity. Would you—

Committee Counsel (00:49:49)

Yeah, either HPD or the third-party transfer designee have a lot of freedom to make some decisions that could— they could say to the tenants, even though you've met these criteria, we're not transferring the building. And so that leaves the tenants kind of at a lurch when they've done everything they were asked to do. We want to make sure if they've struggled, they've suffered, we're telling them there's going to be this co-op at the end, we want some guarantees along the way that that'll actually happen, that's committed to in the law so they can rely on it, and then if they can't, if that doesn't happen, they can have a basis to sue because they've done everything they need to do. Because they can't just beg for it. They need— we want to give tenants power to do the right thing here. And I'm worried that the way the process is, it's going to just reiterate the problems we had in the '90s and the early 2000s where people wouldn't get those buildings become tenant ownership because either HPD decided or the nonprofit decided they that was not gonna happen.

Rosa Kelly, Chief of Staff to Commissioner, HPD (00:50:46)

Yeah, I think we can definitely offline a little to talk a little bit more about what that might look like. And I'll also just say that, like, again, a lot of this is about removing the discretion and putting in more objective criteria. So I actually think that maybe, you know, once we can talk a little bit about more what we've proposed, we may actually be more in alignment than as, you know, as it seems right now, because that clarity, that transparency, and the additional resources, you know, of the objective criteria for petitioning to become tenant-owned, a tenant-owned building, I think is more in line with maybe what you're envisioning now.

Carrie LaBotz, Associate Commissioner for Preservation Finance and Portfolio Management, HPD (00:51:26)

And so let's talk more about it. Thank you.

Chair Pierina Ana Sanchez (00:51:29)

Thank you. Thank you, Councilmember.

Council Member Yusef Salaam (00:51:30)

I'll now turn it to Councilmember Salaam. Thank you, Chair. And many of the questions that were raised, of course, embodies many of our districts. And so once that offline conversation happens, definitely we want to make sure that we have the insight into how we move forward. Many longtime Black and brown homeowners in Harlem, particularly seniors on fixed income, reported never receiving adequate notice before Round X. Beyond mailing a notice, what— with a tax bill, rather— what concrete multilingual and multimodal outreach will DOF implement to make these homeowners actually understand that they are at risk?

DOF Representative (00:52:29)

Thank you for that question. During the tax lien, we implemented a lot of new outreach models to reach tenants and would work to do the same with TPT. We worked with our partners at HPD, DEP, the mayor's public engagement unit, and neighborhood neighborhood nonprofit groups. We had 66 different events where council members joined us and our partners at PEU and HPD and DEP also joined us. We developed a 2-page fact sheet outlining important information about the sale, which we would do for the TPT program, which was available to— in 10 languages and was used by all the city agencies, the Center for Neighborhood Partnership, the outreach partners and elected officials. We also engaged with person-to-person where the neighborhood went— actually went and canvassed the neighborhood to let the owners know that their property was part of the lien sale. Do that same engagement with the TPT program.

Council Member Yusef Salaam (00:53:48)

And can you walk us through what the new 20th percentile distress threshold looks like for typical Harlem brownstone owners with modest tax debt and no serious violations and confirm they cannot be put into this program?

Lucy Joffe, Deputy Commissioner for Policy and Strategy, HPD (00:54:08)

Thank you for that question. There's two, I think, pieces to that response. Many of those folks will fall under some of the exclusions that we've talked about. That's a part of the legislation that the council and HPD need to still sort of work out, but generally are quite aligned around both ensuring that folks who are living in their homes, who meet income eligibility criteria, who you know, are veterans or older adults or have disabilities would be excluded outright. But beyond that, the changes from statutory distressed to critical eligible are— and introducing the balance model really are also meant to address all of those concerns from the last program. We do believe that we're going to be seeing larger buildings that are going to meet the critical eligible definition than under statutory distress. And they're going to be much more distressed, both in terms of having the physical and the financial distress. And the— I mentioned that they'd be larger, but the median building size, we really do expect to be something like 30 units a building, not some of the smaller buildings we saw in the block pickup removal. Is also really critical to that. What we saw the last time is that a lot of folks, because they were on the block, on a block with other buildings that were quite distressed, if they otherwise met the minimum eligibility requirements, could, could be included. And that's not going to happen. We're not going to have the block pickup under this version.

Council Member Yusef Salaam (00:55:48)

What targeted outreach and technical assistance is HPD providing to landlords in high-poverty communities of color before they reach the distress threshold so TPT is truly a last resort and not the first response?

Carrie LaBotz, Associate Commissioner for Preservation Finance and Portfolio Management, HPD (00:56:03)

Thank you for that question. So in terms of properties that are identified for the tax lien sale or removed from the tax lien sale because they've met the eligibility criteria, we're providing additional resources for those owners to understand what's available to them to have them removed from the a lien sale. We're establishing and recommending an agency liaison, as well as support for our owner's resource center. The owner's resource center will provide technical assistance, as well as guidance on resources to how owners can remove their buildings from the tax lien sale. Um, our additional notifications will have more information, both about the status of the building, the conditions that are placing them them in the tax lien sale or making their— excuse me, making their buildings vulnerable for in rem foreclosure and adding additional notifications both in statute and programmatically so owners understand— all owners understand where their buildings are and how they can remove them and what resources they have access to to be removed from the in rem process.

Council Member Yusef Salaam (00:57:05)

And Chair, for me, just one last one. Once a distressed property in Harlem is transferred to a third third party, what enforceable guarantees exist in the regulatory agreement to ensure current Black and brown tenants can actually afford to remain there after rehabilitation, not just that the building is technically stabilized?

Carrie LaBotz, Associate Commissioner for Preservation Finance and Portfolio Management, HPD (00:57:24)

For all of our programs, including TPT, these are nondisplacement programs. When we are working with the designated third party to put together rehab and financing plans for the building, we're looking at the rents in place, as well as the incomes of the tenants in place. We are not rent burdening any tenants, which we establish as 30% of their income for any program receiving assistance from HPD and Preservation. In particular, for the TPT program, it is a non-displacement program.

Chair Pierina Ana Sanchez (00:57:56)

Thank you. Thank you. And we also have a position that is being created through the current version of the bill, it's not final, for an ombudsperson. Can you, can you speak a little bit to the agency's position on the ombudsperson?

Rosa Kelly, Chief of Staff to Commissioner, HPD (00:58:12)

Thank you so much. So we definitely agree that customer service, sort of this role that the ombudsperson would play, is really important. I think that's where we actually saw a lot of places for improvement based on how last rounds of TPT have gone. Our recommendation is actually more around an agency liaison, similar type of responsibility, but instead of one person for the whole thing, it's actually one person per agency who is steeped in the, let's face it, pretty complicated ways that operationalizing a tax enforcement program implicates DEP, DOF, and HPD. That agency liaison would be clearly identified, both on an agency website, so folks would know who to talk to, and they would be the right person to help dig deep, be the contact person for customer service type issues from owners who are looking to navigate out of the program, tenants who are wondering where they are in the process if they find out that their building is a part of TPT. So we definitely agree with the goal of this recommendation from the council. We have a proposal that we think gets to that goal.

Chair Pierina Ana Sanchez (00:59:29)

All right.

Rosa Kelly, Chief of Staff to Commissioner, HPD (00:59:31)

Thank you.

Chair Pierina Ana Sanchez (00:59:31)

Whenever, whenever we're not going from somebody has to— a private citizen has to deal with multiple agencies to solve one problem versus, you know, having one person that they can go to for everything, it's, it's not quite meeting the intent of why we added that provision. We can discuss further how we can, we can get it right. Um, okay, so I, I want to move to the surplus equity provision in the legislation. The old program did not consider any remaining, any equity that might be remaining at a property at the time of transfer, but there have been recent Supreme Court decisions and others that would, would point in the direction of requiring the city to consider such equity that could remain at a property. And so to that being, the new program creates an application process by which owners can apply for any remaining equity in their property following a transfer. Can you speak to HPD's position on this proposed framework allowing owners to claim any remaining equity in their property in the event of a transfer? And in past rounds of PT, was there any instance of owners being returned any version of a surplus equity?

Carrie LaBotz, Associate Commissioner for Preservation Finance and Portfolio Management, HPD (01:00:46)

Thank you for that question. I'll answer the last piece first. The current statute does not have a mechanism for making a claim of surplus equity. We agree that owners should have a mechanism to be able to— first, we need the statute to comply with the Supreme Court ruling, and the owners should have the ability to to recoup some of their equity in certain circumstances. We are doing this through— so owners have awareness, putting notifications, early notification in outreach to the owners, as well as adding a notification to the statute that will instruct owners about how to make that surplus equity claim.

Chair Pierina Ana Sanchez (01:01:28)

Thank you. Moving to HDFCs, and I always I'd like to start at, you know, as I did in my testimony, like to start with the background for why the city has this power of municipal foreclosure. I think in conversations leading up to today's hearing, there's been a lot of questions about why is the city taking properties, where is this coming from, and it's very important that it is a power that we've had since 1976. And so tracing back that history and looking at what, you know, HDFC co-ops that we have in the city today, so many of them came from that, right? So we talked about in 1994, by 1994, nearly 50,000 units were in the city's ownership, and 22,000 of those became HDFC cooperatives, about 1,000 buildings. Can you just give us a quick lay of the land of what, how many HDFC cooperatives do we have remaining in the City of New York that were transferred through this mechanism or constituted through this mechanism of third-party transfer or in-run foreclosure before it? And what is the relative health of HDFCs in the City of New York?

Rosa Kelly, Chief of Staff to Commissioner, HPD (01:02:37)

HDFC co-ops, that is. So I think we can get back to you on like maybe more specific numbers, which we may not have, but we I think also the way that we're looking at this is that HDFC co-ops are not separated out just because they're a part of the tax class that is a larger universe. However, because our intent is to identify the worst of the worst, we're really separating it that way. We do know that about, in some of our statistical samples and when we've done data data analysis, about 30% of the top 500 buildings were HDFC co-ops or HDFC rentals.

Chair Pierina Ana Sanchez (01:03:29)

How many properties are 30%? You're making me do math. 30% of 500 is 5 times 3, 160, 150, 160. Yeah.

Lucy Joffe, Deputy Commissioner for Policy and Strategy, HPD (01:03:41)

This would vary, right? I think that the takeaway is it does represent that portion of the total building. It would really vary, A, in a given year, but also depending on the size of the sample. But we do recognize that they're, you know, an important block here and something that we know the working group has put a lot of thinking into, and we have with your team.

Chair Pierina Ana Sanchez (01:04:00)

And I understand that there were 83 HDFC co-ops transferred in round 10, so this is sort of consistent with an overrepresentation of HDFCs. Do we know how— you said you don't have this number today, or can you get how many HDFC co-ops remain in the City of New York?

Rosa Kelly, Chief of Staff to Commissioner, HPD (01:04:22)

We can get that for you. We definitely have that number somewhere. I just actually don't have it right in front of me, but we'll make sure we get that for you.

Chair Pierina Ana Sanchez (01:04:29)

Okay, got it. You started to talk about this, but given this disproportionate inclusion of HDFC co-ops in previous TPT rounds and, and in this model, what is HPD's stance on how HDFCs in particular should be treated in a reimagined version of the program? What unique redemption options should be available to them?

Rosa Kelly, Chief of Staff to Commissioner, HPD (01:04:47)

What additional supports should they receive? Well, I'll just say, you know, we think that HDFCs will benefit from a lot of the additional outreach and notifications that we are putting in place here. So, you know, I do think that we are— first of all, the selection and eligibility criteria is going to change, or we are proposing that it changes such that they are not overrepresented in future rounds of TPT. In addition, the supplemental notices and outreach that we are proposing as part of the reforms will absolutely benefit HDFC co-ops, and so, you know, we are holding ourselves to higher standards in these reforms, and we do expect that there will be a higher level of touchpoints because of that, including with support from our Owner Resource Center, which is something that didn't exist in previous rounds of TPT. Anything else that maybe, Carrie, you want to add here about that?

Carrie LaBotz, Associate Commissioner for Preservation Finance and Portfolio Management, HPD (01:05:49)

Sure. Pardon me. Just to add, we are adding additional notifications that will give HDFC HDFC co-ops in particular, these notifications will go to everybody, but HDFC co-ops in particular will benefit from getting earlier notifications in the process. We're also standardizing our payment plan so it's clear to all owners how they can remove their properties from the action. Rosa mentioned the owner resource center. We also have additional resources to homeowners programmatically outside of TPT, outside of the tax lien sale. Through the Office of the Homeowner Advocate and through the Homeowners Help Desk, both of which were established in 2024, all to bolster support for homeowners.

Chair Pierina Ana Sanchez (01:06:31)

Can you—

Lucy Joffe, Deputy Commissioner for Policy and Strategy, HPD (01:06:31)

and we know that there are struggling HDFC co-ops in the city. We have a number of programs to be able to support them so that they don't get to this place. And that's also something we'd really emphasize. It's a huge part of our homeownership focus is being able to help stabilize existing homeowners where they need it.

Rosa Kelly, Chief of Staff to Commissioner, HPD (01:06:49)

And in previous rounds, they were not allowed to petition to become cooperative owners once again. In this round, we are actually putting back into statute the ability for HDFC co-ops to petition to reconstitute as co-op ownership once again, even post-TPT.

Chair Pierina Ana Sanchez (01:07:08)

Thank you. Can you— you said in that in your modeling, You said 30% of the top 500 worst buildings were HDFC co-ops and rentals. Can you give that breakdown between how many were co-ops and how many were rentals? It's about 20% co-ops, 10% rentals. 20% of the 30%?

Lucy Joffe, Deputy Commissioner for Policy and Strategy, HPD (01:07:29)

Yes. These are all estimates, right? They are— we've worked very hard on them, but we are— they are— it would be subject in any given year to a ton of variables. So we want to help everyone sort of understand what we're looking at here, but we also want to sort of avoid the perception that it would always be that.

Chair Pierina Ana Sanchez (01:07:50)

Okay, so roughly 800 or 100 co-ops and 50 rentals, roughly, roughly. That's with a grain of salt. That's what my Excel formula would say. Okay. Okay. Thank you. And I know the HDFC coalition is watching. They're submitting testimony, but I do welcome the opportunity to talk further about this because HDFC co-ops were created through in rem foreclosure. How it's just poetic in the wrongest way for them to go through in rem foreclosure again to lose that ownership, even if they can re-petition. So welcome opportunity to talk more about how we can stabilize these properties. Okay. Moving to Neighborhood Restore— one second. Moving to Neighborhood Restore, can you describe the details of HPD's contract with Neighborhood Restore and what is the financial relationship that the the city has with this entity.

Carrie LaBotz, Associate Commissioner for Preservation Finance and Portfolio Management, HPD (01:09:01)

Sure. Thank you for that question. Neighborhood Restore is a critical partner to HPD and was formed by LISC and Enterprise to support round 1 of TPT. We provide support programmatically and administratively to Neighborhood Restore at the start of each round to support their administrative functions overseeing the buildings as interim owner. Neighborhood Restore provides immediate stabilization work as soon as the properties are transferred through the MREM foreclosure process. They're doing tenant meetings, they're issuing and working with tenants on establishing rent-stabilized leases, as well as assessing emergency conditions and addressing those conditions within the building upon transfer. HPD enters into agreement with Neighborhood Restore at the start of each funding round, and the relationship is outlined in an MOU between Neighborhood Restore and HPD. At the beginning of a round, you said? We enter into an agreement where we provide funding at the beginning of every round with Neighborhood Restore.

Chair Pierina Ana Sanchez (01:10:16)

Thank you. Would you provide a copy of that contractual relationship, a copy of the contract to this committee? We're happy to talk more about that request. Yes. Don't make us subpoena. No, I'm kidding. Okay. We're all friends here. Okay. HPD previously testified that past transfers on occasion have been reversed. Can you share the circumstances that led to any sample reversal or sample reversals? What was the exact mechanism for reversing a transfer? Is HPD able to do this through its contract with Neighborhood Restore?

Rosa Kelly, Chief of Staff to Commissioner, HPD (01:10:59)

I'll just start by— thank you so much. I think we'll start by saying we agree that there are definitely limited circumstances and past precedent where reversals have been necessary. And moving forward, we are really striving to carve out objective bases that are fiscally responsible. So as I said, we are really trying to be more intentional about our objective criteria for many, many parts of this program. But, you know, in previous situations, we recognize that sometimes an owner has a attempted to address issues. So there have been situations in the past where we have reversed transfers because, you know, certain missteps along the way. We don't expect that to be the case moving forward because of the new criteria and much of the smoothing out of the process that we've identified. But there are also objective criteria that can trigger removal of a prior to a final judgment. That's things like the validity of a lien, or maybe the city's already collected payment on all the taxes and interest, so that can happen when there's something subject to foreclosure. Similarly, if charges are canceled, that is also a situation where we would reverse. And then also, just a note here that applications for reversal would be subject to the the In Rem Foreclosure Release Board, which is a body that deals with this type of situation.

Chair Pierina Ana Sanchez (01:12:31)

What is the current status of the In Rem Foreclosure Release Board?

Carrie LaBotz, Associate Commissioner for Preservation Finance and Portfolio Management, HPD (01:12:35)

Has it been used in the past, and why? So we're supportive of keeping the In Rem Foreclosure Release Board in the current statute. As Rosa said, there are limited circumstances where we will work, where reversal will take place. We need to have clear and objective criteria and limit discretion. One piece that we are recommending that we would like to continue discussing is that the city will need to retain discretion to reverse transfers where there's surplus equity that cannot be supported by the city.

Chair Pierina Ana Sanchez (01:13:07)

Do you have examples of when the In Rem Foreclosure Release Board has been used?

Carrie LaBotz, Associate Commissioner for Preservation Finance and Portfolio Management, HPD (01:13:13)

To my knowledge, we don't have any recent examples of a release from the In Rem Foreclosure Release Board. We'd like to continue talking about that provision with the council.

Chair Pierina Ana Sanchez (01:13:23)

Got it. Thank you. What are estimated costs for each of your agencies to administer the program in the— in round 10 and moving forward to if there is a round 11?

Carrie LaBotz, Associate Commissioner for Preservation Finance and Portfolio Management, HPD (01:13:37)

Sure. So in terms of looking forward to a round 11, because we're still negotiating this legislation, we are happy to keep talking about what our estimates will look like once we have finalized legislation. We do know that staffing, capital, and programmatic support is critical to the success of the TPT program and ensuring we have good customer service and are able to administer the program effectively. For potential costs, we will need programmatic support for the owner's resource center to support Neighborhood Restore, to be able to support for the appraisals that we'll need to conduct to estimate surplus equity or assess surplus equity, as well as to make surplus value payments where necessary and where supported. We'll need specific staffing support as well as capital support to ensure that we have dollars to rehab the buildings that are coming through the MRAN foreclosure process and being disposed to or being transferred to a third party.

Chair Pierina Ana Sanchez (01:14:36)

Designated entity. Thank you. Can you talk a little bit about the process that the agency imagines undertaking to determine the surplus value?

Carrie LaBotz, Associate Commissioner for Preservation Finance and Portfolio Management, HPD (01:14:46)

Sure. So we have two pieces of notification that will include information about the surplus equity process. First, for the final warning notice, that will include information to the owner making them aware that there is an opportunity to request surplus equity and what that process will look like. In the statute, we are adding a notification that will be sent that will require a report to be sent to the owner that includes the assessment of the surplus equity. This notice will also allow owners an opportunity to dispute, to either make that claim or dispute the findings of the appraisal. And who is conducting the appraisal? HPD will need to contract once we have final legislation in place. We need to contract with a vendor to be able to complete those as-is appraisals.

Chair Pierina Ana Sanchez (01:15:39)

Thank you. And then turning back to tenant ownership before turning it back to my colleague Councilmember Epstein, how many buildings have successfully converted to tenant ownership via previous rounds of TPT? Thank you.

Carrie LaBotz, Associate Commissioner for Preservation Finance and Portfolio Management, HPD (01:15:54)

Yes, there are 73 tenant petition properties supported through rounds 1 through 10. And were those 73 tenant petitions completed? 47 have converted, 13 have remained long-term rentals, and 10 buildings are pending conversion and are post-construction and loan conversion, and 3 properties are in construction and pre-development.

Chair Pierina Ana Sanchez (01:16:20)

And for the properties that are long-term, the 13 properties that are long-term rentals, the ones that have stalled in the process, as we've been discussing, how does HPD understand why that stalling has occurred?

Carrie LaBotz, Associate Commissioner for Preservation Finance and Portfolio Management, HPD (01:16:37)

In limited circumstances, we— a tenant petition is not able to successfully convert into a co-op. I don't have exact information on the of the 13 long-term rentals. I'd be happy to talk more about those and their circumstances.

Chair Pierina Ana Sanchez (01:16:53)

Thank you. So turning to the process to petition for tenant ownership, in the TPT working group report, you all state that Neighborhood Restore HDHC works with HPD and the selected qualified third party to stabilize, engage, and plan for rehabilitation and future ownership of these properties. Can you break down for us who— what is happening at each stage? So the transfer occurs, the tenants are working with a qualified third party. Is that qualified third party then the entity that also helps them transition into ownership, or can you just break down that process for us?

Carrie LaBotz, Associate Commissioner for Preservation Finance and Portfolio Management, HPD (01:17:31)

Sure. So at the start, for any building, and now this will include include going forward HDFC co-ops, the building must meet the minimum eligibility criteria to have the opportunity to be a tenant petition, which is what we call the future co-op process. That is, the building must have 10 or more units, it must be occupied 50% or more, and 80% of those tenants have to indicate an interest in homeownership, as well as identify a designated entity from our prequalified list of entities. That designated entity will take the project through predevelopment, construction, and support the co-op in forming after the construction has completed.

Chair Pierina Ana Sanchez (01:18:18)

And so at which— at what point does— is that final determination made that we've done predevelopment, we've done construction, the tenants have come together and they've met the minimum criteria, at what point does HPD then decide that the tenants can become shareholders?

Carrie LaBotz, Associate Commissioner for Preservation Finance and Portfolio Management, HPD (01:18:40)

As I said, there are limited circumstances where we are determining that the project has not met the milestones. I don't have specific details about where in that process. It is different for every co-op. We have to ensure that that the co-op is being formed to be successful. I'd be happy to follow up and talk more about instances in terms of past projects.

Committee Counsel (01:19:08)

Thank you. Councilmember Epstein. If there's a history of harassment in a building where findings of harassment have been determined, is that a factor at all in your determination whether a building can go through TPT?

Rosa Kelly, Chief of Staff to Commissioner, HPD (01:19:22)

So not specifically.

Committee Counsel (01:19:23)

So again, the criteria— That's great. Okay, not specifically, and it's not in the statute, right? No. So if there's a long-term history of harassment, tenant's been suffering through harassment, that is not a factor currently that you'd want to consider in whether a building can go through DPT?

Rosa Kelly, Chief of Staff to Commissioner, HPD (01:19:36)

Again, I think our objective criteria that we've determined here does—

Committee Counsel (01:19:40)

Objectively, if someone says a finding of harassment, that's a judge determination there's harassment.

Rosa Kelly, Chief of Staff to Commissioner, HPD (01:19:45)

That's an objective standard, right? Yes, but we do have lots of preservation programs and support for buildings that may not meet the criteria of TPT. We do expect that buildings that are in physical and financial distress— excuse me, distress— may fall into that category and be captured by this program.

Committee Counsel (01:20:05)

So I just want to focus on the HDFCs. So 20% out of the top 500 are are co-ops and about 10% of those rentals. Of those 10% that are rentals, how many of those didn't get an Article 11 tax exemption, do you know?

Lucy Joffe, Deputy Commissioner for Policy and Strategy, HPD (01:20:20)

So the numbers that we were giving were sort of the hypothetical of what would happen if it was in place today.

Committee Counsel (01:20:24)

No, I'm saying you said there's 500 distressed buildings right now. You think 30% of them are HDFCs?

Lucy Joffe, Deputy Commissioner for Policy and Strategy, HPD (01:20:30)

Sorry, let's go back to that a little bit. That is analysis that we've done to say if this was in place today and we were going to select a hypothetical 500, how do we think that the model would work out? So they're not actual buildings and we can't speak to which—

Committee Counsel (01:20:45)

So we don't know if any of those got any rehab at all from the city when they converted. We don't know if they got an Article 11. We don't know if they got system-wide work. We don't know if the city supported them when those buildings were converted to HDFCs, right?

Lucy Joffe, Deputy Commissioner for Policy and Strategy, HPD (01:20:59)

Right.

Committee Counsel (01:21:00)

So there's a hypothetical building, so we can't speak to the exact So there might be buildings who converted to an HDFC, like in my neighborhood, that didn't get any support at all and never got an Article 11, may look distressed, but they never got the gut rehab some of these newer buildings are getting. That's possible, right?

Rosa Kelly, Chief of Staff to Commissioner, HPD (01:21:21)

So that's certainly possible.

Committee Counsel (01:21:22)

Yeah. So is there a way to view those buildings differently, especially if some buildings got rehab and other buildings didn't get the support that they needed? To get stabilized from the beginning. They may have to spend their resources doing the roof and the pointing and the kitchen bathrooms on their own because HPD didn't initially come in with the resources that they did with other properties.

Rosa Kelly, Chief of Staff to Commissioner, HPD (01:21:43)

Yeah, I think that this goes back to our proposal for additional outreach and support and off-ramps from TPT. In particular, we're making it easier for owners, including HDFC cooperative owners to make payments by giving them access to more clear, standard, and transparent payment plans. And they can also apply to Article 11 support and get support through our preservation financing programs, which would be an off— you know, having— getting the financial support, addressing the physical issues, those are off-ramps to TPT for any owner, but we do believe that HDFCA co-ops will benefit from the reforms that we're putting in place for that off-ramp.

Committee Counsel (01:22:23)

It's funny because I had a meeting with HPD the other day about an Article 11 for a building that's an HDFC that's been trying to get an Article 11 for about 20 years. And we're like, okay, we're ready to do the paperwork. They're like, well, we don't have any Article 11 money this year. Maybe we'll consider you for next year. And this is a building that's distressed because of the taxes but need the support from HPD. How do we ensure that the buildings that are in that process who are trying to get the support but aren't able to get the support can find a different path.

Carrie LaBotz, Associate Commissioner for Preservation Finance and Portfolio Management, HPD (01:22:53)

We're happy to talk about that building more. I know the exact building that you're speaking of is on that call. We, in general, as Rosa said, we have support for these buildings. We have Article 11s, we have City Capital. We do need support for more resources in terms of making sure that we're able to meet those buildings.

Committee Counsel (01:23:09)

Yeah, more resources, Article 11s, more money is better for us. I agree with you. Can I just— I know you said 3 are still in construction.

Carrie LaBotz, Associate Commissioner for Preservation Finance and Portfolio Management, HPD (01:23:16)

This is from around from 2015, right? Oh, in terms of the tenant petitions? Yeah. So the round was started in 2015. Transfers happened in 2018. Litigation was still resolving on some of those transfers, which delayed our ability to move forward on those buildings. That round 2 was subject— unfortunately, we had delays during COVID We have 3 buildings from Round 10 that we're working on right now.

Committee Counsel (01:23:42)

So 47 out of 37 converted, 13 long-term rentals, basically 60% have converted, 40% have not. And so these are tenants who initially submitted with the 80% saying that they wanted to get into tenant ownership, and 40% of those have not gotten into tenant ownership.

Carrie LaBotz, Associate Commissioner for Preservation Finance and Portfolio Management, HPD (01:24:01)

That's what I hear you saying, right? I can't confirm your percentages because because I can't do math that quick in a hearing, but I will say that we are working with a portion of these buildings to ensure they're converting both on their construction financing as well as into their—

Committee Counsel (01:24:15)

And this is from the round from 2015 or 2018, depending on the year.

Carrie LaBotz, Associate Commissioner for Preservation Finance and Portfolio Management, HPD (01:24:20)

Pardon me. The round 10 properties, those are the 3 that we were speaking of. Those were subject to litigation, which delayed work in those buildings, and in some instances— Those other buildings are still— The other buildings Those were from prior rounds. So those are representing buildings that are still either delayed in getting the co-op conversion or delayed in construction.

Committee Counsel (01:24:37)

We've had a lot of construction delays. So 10 years. People would be waiting 10 years and still waiting to become a co-op.

Chair Pierina Ana Sanchez (01:24:44)

We're still actively working with some buildings. All right. Thank you. Thank you, Councilmember. I'm going to ask a couple more rapid fire to HPD and then I'm turning to sister agencies. The effect of the lien sale reforms on third-party transfer. At the end of last session, the council enacted legislation amending the lien bank and the lien sale process to allow a land bank to approach foreclosure more holistically by considering revenues, community need, and housing conditions. How does the administration envision synergizing the new procedures for the land bank with the proposed reforms to third-party transfer.

Rosa Kelly, Chief of Staff to Commissioner, HPD (01:25:24)

So I'll start by saying our definition for critical eligible is the real key piece here. This is something that would be— would allow us to enact a round of TPT regardless of an existing lien sale year to year, but it also helps standardize that definition of buildings that are most appropriate to be removed from from the tax lien sale. In addition, we work with our partners, as our colleague from DOF mentioned, on outreach and support for any homeowners and property owners who are potentially impacted by property tax enforcement legislation. We envision that moving forward through any reforms on tax lien sale, land bank, and other future iterations of that legislation, we would continue to conduct outreach and provide support through many of our neighborhood partners and in partnership with our sister agencies like DOF and DEP.

Chair Pierina Ana Sanchez (01:26:26)

Thank you. In terms of, in terms of the process for third-party transfer and the fact that it takes 2.5 years, where it in the past did take 2.5 years on average, Could you— does the agency have any perspective on shortening that process, especially with the consideration of, you know, focusing on the worst of the worst through this critically eligible definition? Yeah, definitely.