Bad Management, Apathetic Residents, a Co-op Facing Foreclosure. What Now?
Sept. 3, 2013 — It was a prescription for disaster, with unlimited refills. The property manager at this Washington Heights co-op was also a shareholder and president of the board of directors. Family members were on the building's staff. Rent and maintenance payments in the limited-equity Housing Development Fund Corporation (HDFC) co-op were collected erratically. Capital improvements were postponed or overlooked. Taxes and water bills went unpaid.
Although few shareholders knew it, their building was fast approaching foreclosure.
The root of the problem, says current board's secretary Joy Bailey, was a not-uncommon conflict of interest: The managing agent also served as board president. "The effect was that we didn't know what was going on," she says. "You've got to have checks and balances."
Dark Days
Many shareholders in the 36-unit building were in the dark — and in for a shock. "I didn't know the extent of the problems," says board president Renee Davenport (below), a clinical iridologist and master herbalist who owns Brio Holistics. She moved into the building in 1995 and bought her apartment in 2003. "I didn't know the building was about to go into foreclosure or that there were astronomical unpaid water bills and taxes. The board was going door-to-door to collect money for heating oil. Sometimes, there was no heat or hot water. The boiler was shot. The elevator was hit or miss. It was a mess."
In 2003, some concerned shareholders started looking for answers. "I got phone calls from several shareholders asking what was going on," says Ann Henderson, associate director of co-op preservation at the Urban Homesteading Assistance Board (UHAB), which supports, trains and assists shareholders at limited-equity co-ops throughout the city. Henderson didn't have to dig very far to learn that the Washington Heights co-op was in serious trouble.
"So I went there in May 2003 and explained the situation to the shareholders," Henderson says. "The building was in the process of being foreclosed by the city for nonpayment of taxes. I told them they owed about $1.26 million in back taxes, and they could get $1 million of that forgiven, but it wasn't going to be easy."
It was, in fact, going to be a decade of hard, painful work.
The Long Road Back
The first order of business was to get rid of the cozy family affair and elect a new board of directors. This was done in February 2004, with Davenport winning the presidency (but turning it down, choosing instead to be chairperson) and Bailey becoming secretary of the five-member board. They hired a new property manager, who set about aggressively collecting back rent and maintenance, the most fundamental building block of any financial turnaround. The board didn't hesitate to take residents to court to collect arrears.
The board was going
door-to-door to collect money
for heating oil. Sometimes, there
was no heat or hot water.
Board members also attended seminars organized by the Council of New York Cooperatives & Condominiums, on everything from budgets to hiring a lawyer to landlord-tenant relations.
Within three years, the finances improved enough for the co-op to secure a $525,000 loan from the non-profit Low Income Investment Fund. It was used to pay off back taxes and water bills, and it was to be repaid through apartment sales. (It was paid off in December 2012.)
The board simultaneously turned its attention to the daunting task of capital improvements. In 2006, it secured a 25-year loan of $902,000 with a two percent interest rate from the city's Department of Housing Preservation & Development (HPD). The laundry list of neglected maintenance was long: a new roof, boiler, elevator, and windows; renovation of the lobby, hallways, courtyard, and several bathrooms; and potential repairs to a retaining wall. In addition to their other problems, the board members and shareholders had nightmares about reliving the disastrous collapse of a retaining wall at the nearby Castle Village co-op in 2005; luckily, their wall ended up not needing repairs.
Disaster was averted, but there were more bumps in the road ahead.
Did the board continue to improve the building's finances, or get complacent and see the cycle start again? Read Part 2 or pick up the September issue ofHabitat.
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Photos by Carol J. Ott. Click top image to enlarge.