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Sales of HDFC Owned Properties
In response to a large amount of requests by Housing Development Fund Corporations (HDFC) formed pursuant to Article XI of the Private Housing Finance Law (PHFL) and the Business Corporation Law (BCL), the Department of Law of the Real Estate Finance Bureau of the State of New York gave guidance as to whether HDFCs can convert their properties to market-rate coop and condominium housing.
Purchaser’s attorneys, often in their contract negotiations include additional clauses (by way of a rider) HDFCs are corporations governed by the PHFL and are also incorporated by the BCL. They came around in the 1970 at a time of financial chaos where buildings were falling into severe disrepair and abandon. The HDFC gave (and give) an opportunity to the tenants of those dilapidated buildings to purchase their own buildings and run the building as a cooperative with the tenants being under Tenant Interim Leases. The main requirement for HDFCs is that they are regulated by their supervising agencies (Housing Preservation and Development – HPD and Division of Housing and Community Renewal – DHCR) to ensure that they provide housing for people with low income. Indeed, the HDFC is required by the PHFL section 573(3)(a) to contain a statement in their certificate of incorporation that states “that the company has been organized exclusively to develop a housing project for persons of low income;”
With all that in mind, a large number of HDFCs have requested guidance from the Department of Law of the Real Estate Finance Bureau of the State of New York, as to what procedure they would have to follow to operate or develop their property as anything other than a low income housing project. Essentially the answer is that the HDFC would have to be dissolved, and the property be transferred to a non-HDFC entity which would NOT have the sole corporate purpose as described in PHFL section 573(3)(a). Contrasting HDFCs to Mitchell-Lama housing companies, the memo issued by the Department of Law (link below), states that unlike Mitchell-Lama housing projects, HDFCs are not authorized to reconstitute their company by simply amending their certificate of incorporation to remove the requirements of PHFL section 573(3)(a), or any other type of amendment which seeks to change the HDFC’s character, to anything other than a company with the sole purpose of developing low income housing.
In order to properly “convert” to market rate ownership, the HDFC must transfer to a non-restricted entity. The statutory process is complex and difficult. First the HDFC use any sale proceeds exclusively for the corporate purpose as stated in PHFL section 573(3)(a). This process must be monitored and approved by the supervising agency (HPD or DHCR). The distribution of the sale proceeds can never go to the shareholders of the HDFC. The actual process of conducting the sale, is split into two parts:
The Law Department is encouraging all HDFCs who are contemplating sales, to contact their supervising agencies in order to obtain the necessary approvals, and documentation and is encouraging shareholders of HDFCs to seek independent legal advice in their endeavors to “convert” their property to free-market.
The Law Department’s memo providing guidance on the above can be found at this link:
https://www.ag.ny.gov/sites/default/files/pdfs/bureaus/real_estate_finance/Effective-memos/7.16.2015_Guidance_on_HDFC_Seeking_to_Transfer_or_Sell_Property.pdf
TRID Safe Harbor Rule passes in the House
As many in the industry already know, October 3, 2015 brought upon us the TILA/RESPA Integrated Disclosure Rule (TRID) which was created (and is to be enforced) by the Consumer Financial Protection Bureau. This rule removed the use of the Initial Truth-in-lending Statement and the Good Faith Estimate and replaced them with the Loan Estimate form, as well as replaced the HUD with a Closing Disclosure. Amongst other requirements, the rule imposed time restraints on the delivery of certain documents to the consumer, as well as created stringent requirements to proper disclosure to the consumer of a loan product features and costs.
HR 3192 is a bill introduced in the House of Representatives which was sponsored by Rep. French Hill (R-Ark). It seeks to create a temporary safe-harbor period from the enforcement of the new TRID regulations of the CFPB, providing that the actor subject to the rules, is attempting in good faith to comply with those rules. Representative Hill stated that “this is a straightforward measure that will provide our title companies, bankers and others in the industry who are earnestly trying to comply with the TRID rule the confidence and certainty needed to properly transition into this new closing regime.” The bill passed the House on October 7, 2015 with an overwhelming 303-121 vote in favor. It was given to the senate on 10/8/2015 where is currently pending its vote.
Suffolk and Nassau County to Raise Fees
The current Real Property Tax Service Agency Verification Fee for every recording in Suffolk County is $60 per lot. Christopher Como, Esq., the Official Examiner of Title for the Suffolk County Clerk’s office has announced that the Suffolk County legislators have passed the Suffolk County Budget which predicts revenue based on a fee increase of the Real Property Tax Service Agency Verification Fee. The proposed change will increase the fee to $200 per lot.
Prior to this change taking effect, the legislators needed to pass a local law increasing the fee. That local law was enacted on November 17, 2015 as Local Law 34-2015 (copy attached here). Each lot verified will incur a $200 charge and there will continue to be no maximum fee.
NOTE: The Verification is valid for 30 days. A rejected document that isn’t corrected within 30 days (causing the verification to expire) would have to be re-verified, and the fee paid again.
In a similar fashion Nassau County by way of their 2016 budget, has also made changes to its fee structure for the recording of documents affecting real estate in the Nassau County Clerk’s Office. Effective December 7, 2015 the county recording fee will be increased from $150 to $300 per document. Additionally, the Tax Map Verification Letter fee will also increase from $75 to $225.
If you have any questions or would like further information regarding any of the articles in this newsletter, please contact Keith Eng, Esq. (keng@prestitle.com), George Asllani (gasllani@prestitle.com) or Anthony Chiellino at (achiellino@prestitle.com) or (212)651-1200.
Also, if there are any topics that you would like us to include in future newsletters, please feel free to e-mail us with suggestions at info@prestitle.com.
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