Luxury decontrol ready for income verification

Real Estate Weekly, August 17, 1994 by Lois Weiss

If tenants have contested a luxury income classification that would result in their apartment being decontrolled and their rent raised, owners will have to wait a bit longer to see if they can legally raise these rents.

Under the bitterly contested New York State law passed in July of 1993, those apartments that rent for $2,000 or more on Oct. 1, 1993 and whose occupants' income is $250,000 or more in each of two prior years, can become de-stabilized.

According to attorney Martin J. Heistein, a partner with Belkin Buden Wenig & Goldman, a City Council measure passed later allows the occupants' of those units that reach a rent of $2,000 at any time to become subject to those income verification limits. It also permits owners to decontrol apartments renting for $2,000 or more upon vacancy.

The Division of Housing and Community Renewal (DHCR), in charge of administering the luxury control portion of the revised rent stabilization law, expects to have an income verification system in place shortly.

"We have to finalize an agreement and do it," said Louis Ganim, a spokesperson for DHCR, referring to that agency's interaction with the New York State Department of Taxation and Finance. "We're working on a memorandum of understanding with them. We're going to try to match people by their name and addresses."

According to Taxation spokesperson Karl Felsen, after extensive meetings, a memorandum is now in DHCR's hands and ready to be signed. Test tapes are about to be supplied as well, in order to try out the system.

While many owners already possess tenants' social security numbers from conducting initial credit checks, legally, there is no way for DHCR to ask for a tenant's social security number, since the use of social security numbers is now restricted by Federal law for use in other statutes passed after 1990.

"We can't use social security numbers, explained Ganim. "We can't even ask the tenant for the social security numbers."

That means DHCR will be faced with running address and name matches to state tax return filings. If there is no match, the tenant will remain rent stabilized, added Ganim.

"Obviously, a name and address match is difficult," Felsen agreed. "We've had limited experience with this sort of match and have gotten matches as low as 30 percent." But, Felsen added, this was with old records and people who were scofflaws to various state agencies.

With "stable" people who live in expensive apartments and are more likely to file income tax returns, Felsen believes the percentage will go up.

Earlier this year, 2,068 petitions were filed by owners of 127 buildings requesting the deregulations of apartments based on high-income tenants. So far, 186 apartments have been deregulated because the tenants did not contest the owner's petition. That leaves 1,982 tenants for DHCR to investigate.

Felsen says DHCR will supply the final information on tapes by Oct. 3 and Taxation will return the matches by Nov. 4th. They will be running information against the 1992 and 1993 tax years. Although late filers may escape this year's net, they would get picked up in next year's group.

"We're not talking about a large number here," noted Joseph Strasburg, president of the Rent Stabilization Association, an owners group that has fought for deregulation of all apartments. Even so, he was not happy the system is not yet operational, so the rent administrators could have plenty of time to verify incomes.

"They promised us it would be in place," Strasburg added. "It's a long process even under the best of circumstances."

If the tenant refused to provide income information on forms supplied to tenants last May, or the owner did not believe the tenant's response, the owner can request DHCR to verify the income. Within 20 days of the owner's request, DHCR is supposed to ask for identifying information from the tenant and the tenant has 60 days to respond. DHCR has already begun to send out the ten-page verification forms for the tenants to fill out.

If there is no response from the tenant, an order is supposed to be issued by Dec. 1st decontrolling the apartment upon expiration of the lease, or March 1 if there is no lease.

But if the Dept. of Taxation and Finance finds the tenant's total income of all occupants exceeds $250,000 in each of the two preceding years, DHCR will notify the tenant by Nov. 15 of the finding.

At that point, the tenant has another 30 days to comment.

DHCR can issue an order 45 days later for the apartment to become de-stabilized at the end of the existing lease. But within 35 days of the order, it can be appealed to PAR (Petition for Administrative Review.)

While PAR decisions can easily take three years, attorneys are reporting that backlogs are being chipped away and newer PAR filings are being worked on as well.

"The law has holes in it that need to be tightened up," said Strasburg. "You have people who aren't entitled to subsidies getting the benefits of the rent laws."

DHCR announces two

administrative changes

The Division of Housing and Community Renewal has promoted two employees who often handle owner issues.