Elva McZeal Tenants Celebrate Early Completion of Renovations and Look Forward to Cooperative Ownership

By Jaime Alonso

May 2008 marked another victory for the tenants and leaders at the Elva McZeal Houses (Elva), a federally subsidized 142-unit, two-building development in East New York, Brooklyn. Last May, staff attorneys from Brooklyn Legal Services Corporation A (Brooklyn A), who had a hand in the transformation of Elva, were invited to celebrate the early completion of major renovations and the next steps toward cooperative ownership through the City's Third Party Transfer (TPT) Program. The Open House celebration marks a "new beginning for the tenants of Elva McZeal," says Ms. Dorothy Jones, an instrumental leader, tenant, and president of the Elva McZeal Tenants Association Housing Development Fund Corporation (HDFC).

Celebration of the completion of renovations at Elva this summer. Left to right: Hillary Exter, Dorothy Jones, Mike Haber (rear), Rick Wagner, Joe Sanders (rear), Emily Langdon, Jessie Rose and Jaime Alonso.

Constructed in 1971, Elva is a project-based Section 8 development formerly owned by the William and Georgia Corporation. In 1994, agitated by the terrible and dangerous condition of the buildings, Ms. Jones and other tenant leaders at Elva complained to a number of local politicians, one of whom referred them to Brooklyn A. There they met Rick Wagner, Brooklyn A's Director of Litigations. Wagner recalls, "there were cascading water leaks, rats big enough to mug a German shepherd, inadequate and intermittent heat and hot water, elevators that had not worked in years, so that the elderly on upstairs floors were virtual hostages in their apartments who would have starved if their neighbors had not brought them food."

In Section 8 housing, landlords collect rents based on a federally set market rate. The tenants pay roughly 30 percent of their family income while the federal government pays the remaining balance. To receive Section 8 subsidies, landlords are required to certify on the monthly Section 8 request for payment form that they are providing "safe, decent, and sanitary housing." Since acquiring ownership of the project, William and Georgia had been continually mailing monthly requests for payment which falsely certified that conditions were satisfactory at Elva. In reality the project had over 500 hazardous violations of record creating extremely unsafe and unhealthy living conditions, as well as a mountain of tax arrears.

Early on, Wagner and all tenants involved thought their case was bound for New York City Housing Court. However, it was Wagner who noticed the certification requirement on the request for payment form that had been submitted by the owners to the federal government for the subsidy payments. In the fine print of the form it stated that to falsely certify the condition of the buildings constituted fraud against the U.S. and carried severe penalties. When Wagner saw this language the word "RICO" popped into his mind. Wagner used an innovative civil Racketeer Influenced Corrupt Organizations Act (RICO) argument and also named HUD as a necessary party, knowing that the federal agency would move the case to federal court in Brooklyn.

"The Racketeer Influenced Corrupt Organizations Act was intended to get at organized-crime families," Wagner explained. "In addition to the criminal claim component of RICO, the federal government also wanted to give private persons who were injured by these criminal activities a civil claim remedy against wrongdoers. Thus individuals who are injured in their person or property by the activities of a RICO enterprise can sue for all their damages." For at least 10 consecutive years prior to 1994 William and Georgia had violated federal law by mailing their falsified certifications and receiving wire transfers of money; an estimated $ 7 million in tax payer dollars.

At the outset of the case, Wagner asked the court to appoint a receiver to run the building. Wagner explains that a court-appointed receiver was necessary "to ensure that every dime of rental income would be used for the purpose Congress intended, the operation of safe, decent and sanitary housing, instead of paying William and Georgia's legal fees."

The chips were stacked against William and Georgia and not long after the case was filed, and the building placed into receivership, defendant's counsel called Wagner and offered to end litigation if the tenants paid $1 for all rights and title to the building. In February 1995, refusing to pay even $1, Elva Tenants Association, Inc. took title to the property without paying a dime. Wagner has since used civil RICO lawsuits to similar good effect at buildings in Brownsville and Bedford-Stuyvesant.

But Brooklyn A's legal work for Elva didn't stop in the courthouse. "Brooklyn A's Community and Economic Development Unit gave the tenants at Elva an end game," says Wagner. Hillary Exter, a former senior staff attorney of the CED Unit at Brooklyn A helped to create the Elva McZeal Tenants Association Inc., which is the entity that took title in 1995 and has since changed its name to Elva McZeal Tenants Association HDFC. "The tenants had never run a building, but they were smart, organized, and committed," says Exter. With leaders like Ms. Jones and its legal team at Brooklyn A which brought complex litigation and transactional skills to the table, Elva's future looked bright.

Three years after taking title the tenants completed about $2 million worth of rehabilitation work, correcting more than 500 of the building code violations. In addition, Elva, with the help of HUD, opened a computer learning center, which is still operational and offers classes to residents on how to use software programs like Microsoft Word, Excel, and Power Point. "The learning center gives residents an opportunity to develop important life skills," says Ms. Jones, who runs the center. "Students who complete classes at the center learn how to create resumes, manage their finances, and make Power Point presentations."

Dorothy Jones, Ann Henderson (UHAB), and Rick Wagner at the podium of the celebration. Through Wagner's innovative use of the Federal Racketeer Influenced and Corrupt Organizations Act, Brooklyn A successfully fought to rehabilitate a 142-unit low-income development, leading to the correction of over 500 building code violations. Instead of being returned to the hands of a private corporation or the government, the tenants themselves will take ownership of the buildings in the coming months.

Despite the ongoing success at Elva, Ms. Jones and the tenants at Elva faced another obstacle to outright ownership. In addition to pocketing millions of taxpayer dollars, the William and Georgia Corporation failed to pay over $6 million in real estate, and water and sewer charges. Under property law, tax arrears and any other liens follow title despite a change in ownership.

"The situation was a catch-22," says Exter, "Elva had to either use money generated from rent payments to pay down the tax arrears, or it could use the money to make minor but necessary improvements to the buildings." In the end, Ms. Jones and the members of Elva decided that the health and safety of the tenants was a priority, and both Exter and the tenants at Elva were confident they would be successful in lobbying the State and City to forgive the real estate tax arrears.

Confidence in the suspension of payment for real estate taxes came from Exter's discovery that S 606 of the New York Private Housing Finance Law creates a mechanism for which an "abandoned multiple dwelling," as defined in the section, could have all real estate tax liens forgiven. "We thought the case for Elva was clear," says Exter. Unfortunately, after 10 years of advocacy and a letter-writing campaign, both by the Elva tenants and the staff at Brooklyn A, the City's Department of Finance initiated an in rem foreclosure and in March 2006 the property was foreclosed through the City's TPT program. In consultation with the tenants, Urban Homesteading Assistance Board (UHAB), HPD, HUD and Councilmember Charles Baron, UHAB was designated as the non-profit developer in order to further the tenants' goal of regaining title through cooperative ownership. UHAB is a not-for-profit corporation that, among other things, focuses on expanding the tenant ownership option, and in Elva's case, the goal of cooperative ownership. "It generally takes two years for the TPT program to complete, and at this point, Elva is ahead of schedule," explains Ann Henderson of UHAB. "UHAB expects to transfer title back to us by the end of 2008," says Ms. Jones. "We are getting over 95% of our rental income, and since March 2006 we have made major improvements to the building's structure."

When title transfers back to Elva's tenants, the building will retain its project-based Section 8 classification, which is unusual for properties that go through the TPT program but necessary to maintain affordability. "Most tenants have never owned a share in a corporation, let alone owned their homes," says Ms. Jones. "The process is not yet complete," Ms. Jones continues, "but thanks in part to the support of Rick and Brooklyn A's CED Unit, our tenants will soon take ownership of a valuable resource."