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Rent ruling leaves owners reeling

By Dan Orlando

New York’s landlords have been left reeling by a court ruling that ranks a rent regulated lease alongside state welfare.

The court ruled that rent-regulated leases are akin to “local public assistance benefits.”
The court ruled that rent-regulated leases are akin to “local public assistance benefits.”

The State Court of Appeals last week found that rent-regulated leases are “local public assistance benefits,” like Social Security and Medicare, and therefore cannot be counted as assets and liquidated by trustees in bankruptcy proceedings.

“We were nothing less than astounded to read the court’s decision,” said Mitch Posilkin, general counsel for the Rent Stabilization Association, and organization that represents 25,000 New York City landlords.

“Essentially what the court did is say that every rent stabilized tenant — regardless of their assets, regardless of their income — that their rent (being) stabilized is exempt from a bankrupt estate.”

At the center of the case was 79-year-old widow Mary Veronica Santiago-Monteverde, who sought the protection of Chapter 7 bankruptcy after the death of her husband left her with thousands of dollars in unpaid medical bills.

Santiago-Monteverde is a rent-stabilized tenant who has lived in her Lower East Side apartment since the early 70s. Following her Chapter 7 filing, her bankruptcy trustee accepted the landlord’s offer to buy her rent-stabilized unit for a about $23,000 and in turn, use those funds to settle the debts that landed her in financial trouble.

With no agreement that she would be allowed to stay in her apartment after the landlord gained ownership, Santiago-Monteverde went to a lawyer worried she’d be left homeless by the deal.

The Court ruled that Santiago-Monteverde is not subject to the trustee’s decision and can sell her lease only if she so chooses.

MITCH POSILKIN
MITCH POSILKIN

In a five to two decision, it found that rent-stabilized housing is not an asset which can be seized via bankruptcy and landlords cannot evict tenants who are covered by the benefit for that reason alone.

The decision has been hailed by tenant advocates like Assembly member Linda B. Rosenthal who said, “I am so pleased that the court finally got it right. Filing for bankruptcy should not render anyone homeless, and today’s decision means that countless rent regulated tenants … who have fallen on hard time can take advantage of the financial relief offered by bankruptcy filing without the very real fear of leasing their homes.”

However Posilkin, who defended the interests of the trustee alongside the legal firm of Troutman Sanders LLP, said, “The court made this gigantic leap in concluding that a rent stabilized lease was covered as a local public assistance benefit under the state law, when it was pretty clear when you read the language of that statute that what they actually meant to exclude were things like public assistance benefits — commonly known as welfare — and other sorts of government payments that are made to an individual.

“It’s merely happen-stance if someone happens to be rent stabilized or not.”

Troutman Sanders lawyer John P. Campo, agreed with Posiklin’s contention that the letter of the law was perhaps misinterpreted by the Court.

“We believe the court of appeals totally distorted the meaning of the state law provisions in order to reach its conclusion,” Campo said. “It was a very tight decision, it was very close, it was 3-2, and it was a very strong dissent written by Justice Smith which we agree with.

“Our view is that the Court of Appeals got it wrong, as a matter of statutory construction they’re wrong. However, it’s now the law of New York.”

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