In New York, a significant number of rent-stabilized apartments are facing foreclosure as landlords increasingly default on their mortgages.
A building with a total of 176 rent-stabilized units has been in receivership since 2022. This situation is not unique, with banks reporting an additional 2,093 units in April alone. According to PropertyShark, mortgage defaults are at an all-time high.
“It’s a crisis,” remarked Sarah Salzberg, co-owner of Bohemia Realty Group, who is involved in renting out pre-war apartments in Upper Manhattan.
Salzberg noted that many owners of rent-stabilized properties are losing money, leading them to leave units vacant or abandon them altogether, ultimately resulting in foreclosure.
“The owners are underwater, and this has become increasingly common over the last year,” she stated.
Many buildings constructed before 1974, when the city’s rent stabilization system began, are in dire need of repairs. However, investment improvements slowed to just 2% and effectively halted after 2019 due to new laws that restrict rent increases and prevent landlords from raising rents on vacant units by as much as 20%. Additionally, rising interest rates over the past three years have further stalled necessary renovations.
Tenant advocacy groups and Democratic lawmakers have pushed for these changes, which are seen as the most significant reform of New York’s rent laws in decades.
Yet, this could lead to unintended consequences for NYC tenants.
“Many of us may have to leave,” stated Coco Portoff, a tenant in East Village whose rent-stabilized building is embroiled in ongoing court issues. She expressed concerns that new owners could come in and force out existing residents.
If a landlord defaults, the new owner would inherit the rent-stabilized units but face challenges in keeping rent levels stable. The issue arises when these properties become unattractive purchases because of their rent stabilization status, which could lead to potential evictions.
“When asking prices exceed a dollar, it creates a dilemma considering tenants’ rent protections,” explained foreclosure attorney Alexander Paykin.
Experts highlighted a recent case in March when a lender, Santander Bank, refused to accept keys for a Harlem rent-stabilized building facing foreclosure, illustrating potential repeating patterns reminiscent of the chaotic real estate climate of the 1970s.
Portoff’s landlord, Madison Capital Realty, has been accused of defaulting on mortgage payments since January 2024, according to records from Community Preservation Corp.
“I still need to pay my rent on time, but they aren’t holding up their end,” Portoff said, sharing that she pays $2,200 monthly for a rent-stabilized one-bedroom on East 12th Street, while market rates for similar apartments hover around $3,800.
A total of 209 rent-stabilized apartments across 15 buildings in East Village are part of the legal proceedings against Madison, which had acquired the units in a $153 million portfolio purchase in 2021.
Madison has faced allegations of “intentional misconduct” and “gross negligence” for not collecting rent properly and failing to remit the proceeds to lenders.
Requests for comments from Madison Realty Capital went unanswered.
Statistics indicate that about 10% of the estimated 643,140 rent-stabilized apartments built prior to 1974 have incurred losses, a stark contrast to the profitability these properties enjoyed before revisions to the Rental Act.
Mark A. Willis, senior policy fellow at NYU’s Furman Center for Real Estate and Urban Policy, warned, “The pattern of rent losses may intensify, jeopardizing the sustainability of key segments within the city’s affordable housing landscape.”
Looking ahead, sales by the Taxation Department are on the rise, with the city planning to hold its first auction since the pandemic on June 3. Buyers of this debt could take possession of properties to recover unpaid taxes.
