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TESTIMONY OF SERGE JOSEPH IN OPPOSITION TO PROPOSED AMENDMENTS TO HPD MITCHELL-LAMA REGULATIONS

My name is Serge Joseph. I am a partner in the law firm of Himmelstein, McConnell, Gribben, Donoghue & Joseph. The attorneys in our firm represent individual tenants and Tenant Associations in many HPD-supervised Mitchell-Lama developments throughout the City, including in the Bronx, Brooklyn, and Queens.

The proposed amendments should not be adopted. They are unduly harmful to existing tenants and their families.

Procedurally, the Notice of Public Hearing fails to comply with Section 1043 of the New York City Charter. While the Introductory section of the Notice, entitled "Statement of Basis and Purpose," describes the general basis and purpose of the Mitchell-Lama Law, however Section 1043 of the New York City Charter does not require such a general recitation, but rather the goal and justification for each of the specific proposed changes.

Moreover, the "Summary" also fails, as required under Section 1043 of the New York City, to provide a succinct digest of the proposed changes. Incredibly, for instance, the Summary fails to apprize that the proposed changes seek to bar non-traditional family members from seeking succession rights.

The proposed changes are also substantively problematic. The proposed changes relating to the reconstitution of a Mitchell-Lama development into a Housing Development Fund Company [HDFC] raise more questions than provide answers, and seem to curtail the rights of tenants to full and fair disclosure of the risks inherent in any major change in regulatory status, disclosure that tenants in private rental buildings undergoing cooperative or condominium conversions have been given for decades.

Recently, the Court of Appeals in East Midtown Plaza Housing Co, Inc. v Cuomo found that East Midtown Plaza's proposed reconstitution was subject to the offering plan requirement of the Martin Act. The Court held:

... the Martin Act makes it illegal for a person to make or take part in "a public offering or sale" of securities consisting of participating interests in real estate, including cooperative apartment buildings unless an offering statement is filed with the Attorney General. The purpose of the disclosures requirement in an offering plan is to safeguard the purchasers of cooperatives and condominiums by mandating "full disclosure of risks" and promotion "unit purchasers' self protection by analysis of risks".

Notwithstanding the Court of Appeals' decision in East Midtown, the proposed changes seek to eliminate the need for the filing of an Offering Statement with the Attorney General, and propose a "Draft Proxy Statement."

What is "draft proxy statement"? Does it contain the same disclosure of the terms of terms of the post-reconstituted Co-op as typical Offering Plan? There is no description of what such statement must contain in these proposed regulations or in the Attorney General regulations.

Why do Mitchell-Lama tenant-shareholders only have 90 days to submit their comments and questions to the Attorney General. In contrast, Section 352-e of the General Business Law provides that the Attorney General cannot accept the Offering Plan/Red Herring until at least 4 months have passed.

Section 15(iii) of the proposed amendments provides that after the expiration of the shortened 90-day comment period, the Attorney General "shall provide any deficiency comments to the mutual housing company." However, the proposed amendments fail to spell out a time-limit by which the Attorney General must provide "deficiency comments". Nor is there any standard as to what the Draft Proxy Statement must contain . So by what measure can the Attorney General claim a "deficiency."

Section 15(v) of the proposed amendments provides that "every dwelling unit shall be entitled to one vote, regardless of the number of shares allocated to such unit, ... or the provisions in the Housing Company's Certificate of Incorporation or by-Laws." However, in East Midtown, the Court of Appeals found that the vote counting method spelled out in the Housing Company's Certificate of Incorporation was paramount, and determinative.

Section 15(vii)(B) provides tenant-shareholder only 30 days to opt out and become tenants in the new reconstituted HDFC. This is insufficient. Such a life-changing, important decision must be given careful thought and deliberate discussion. In providing only 30 days to do so, the proposed amendments subvert the process.

Section 15(vii)(C) fails to provide what happens if the City Council does not approve the request for a real property tax exemption. Clearly, under that scenario the real estate taxes will be much higher than estimated in the "draft proxy statement; maintenance will be higher and the tenant-shareholders will pay more than anticipated. But then, it will be too late - the building would have already been reconstituted.

Section 15(ix)(B) provides that on the Reconstitution Date, the Board of HDFC shall provide the "dissenting shareholders" "the return of their initial equity" and a "Market Rent Rental Leases" for their dwelling unit. What does "Market Rent" lease mean? Will such tenants have the rights to renewal; at what rent? Nowhere is this set forth in these proposed changes.

CONCLUSION

We are mindful of the recent changes in the political landscape. But, this is no excuse for last-minute amendments that unnecessarily abrogate well established tenants' rights, without any publicly-stated justification or basis.

These proposed changes should not be adapted.