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Tenants Locked in Financial Dispute With Credit Union 20 Years Later

By Allegra Hobbs | May 13, 2016 2:06pm | Updated on May 15, 2016 7:19pm
 Tenants have hung banners from their windows demanding the credit union
Tenants have hung banners from their windows demanding the credit union "save our homes."
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DNAinfo/Allegra Hobbs

EAST VILLAGE — More than two decades after entering into an admittedly confusing tenancy arrangement with a credit union, low-income tenants of a building with no landlord are locked in a dispute with the commercial tenant over who should pay off the property’s mounting debt.

The 37 Avenue B Housing Development Finance Corporation (HDFC) has long consisted of six residents — five of whom are rent-stabilized and one of whom is rent-controlled — and the Lower East Side People's Federal Credit Union, a neighborhood bank that took over the building’s ground floor purportedly to serve the surrounding low-income community.

Until roughly a month ago, members of both parties made up a board tasked with serving the interest of the corporation — but neither owned the building, and neither felt they bore full responsibility of the burdens of ownership, such as paying property taxes.

"The root of the problem is there is no one who feels a sense of ownership of anything," said Linda Levy, chief executive of the credit union. 

The HDFC has since removed credit union reps from the board amidst frustrations that the bank is not paying its fair share of rent — effectively sticking building tenants with a growing tab that is not theirs, according to HDFC reps.

When the credit union took over the space in the late 1980s, it was with the intention of eventually owning the building, according to Levy — the credit union had swayed the federal reserve board to grant them the space with the understanding that the union would rent until 1991, at which point it would buy the space for $100,000.

But when the time came, the National Credit Union Administration refused to allow the purchase. The credit union began exploring alternatives that would allow it to stay in the building. One viable option seemed to be the formation of an HDFC, which would join the union with the building's tenants and create a mutually beneficial cooperative arrangement.

What happened instead has left the building in a no man's land with no landlord — the two groups entered into a so-called nonprofit HDFC, supposedly because the credit union took up too much of the building's footprint to qualify for a cooperative. 

Under the arrangement, the building is supposed to be overseen by two boards serving the interest of the HDFC — one representing the credit union, the other representing the tenants — with one community member who is not a tenant of the building but serves on the tenants' board.

On the respective leases, both parties are listed as tenants, while the HDFC itself is listed as the landlord.

And while both parties pay rents that are significantly below market rate leaving the building unable to keep up with mounting property taxes and therefore unable to keep up with needed repairs, as it operates at a deficit of roughly $18,000 annually, the two boards, locked in a heated disagreement over which parties should pay more, have been unable to square away the property's financial woes.

Frank Macken, the outside community member serving on the HDFC board, penned an account in The Villager of the credit union's alleged misdeeds, which the tenants see as the root of their troubles — beginning with a supposedly unsanctioned lease amendment that has kept the credit union's rent below market rate for the past two decades. 

The bank in 1996 drafted an amendment to its lease which capped rent increases at no more than 4 percent annually, the same as the rent-stabilized tenants — a move Macken and the building's tenants say have crippled the building's finances, leaving the apartments with no budget for repairs.

"Our building is literally falling apart, and we don't have the funds to fix it because they don't pay their share," said Christine Heredia, a tenant who serves on the HDFC board, who added that the old building is in desperate need of a new boiler, electrical wiring and heating system.

Both boards have wildly divergent accounts of the ongoing struggle to square away the building's annual deficit. 

Levy and other bank employees claim they have repeatedly offered to pay 50 percent of the deficit while the tenants' split the rest, and state they would be willing to pay more rent if the tenants agree to do the same.

"We have wanted to have more cooperation with the residents in keeping the building going, and we feel that every time we make an offer it has been rejected out of hand," said Levy. "There has been an assumption that for some reason the credit union should be paying for everything."

After initially confirming that the bank had made such an offer — and stating that the residents had indeed refused because the deficit should be paid in full by the the bank — Macken later retracted the confirmation and said the board has no memory of such an offer being made. Heredia said she also has no memory of the offer.

Levy was unable to produce any documentation of the offer in writing.

And while Macken and the residents attribute the contentious amendment to greed on the credit union's part, no one currently serving on the bank's board seems to know why it was drafted in the first place.

Levy directed DNAinfo New York to Community Board 3 member Lisa Kaplan, who had signed off on the amendment as the credit union's rep in 1996. Kaplan did not return multiple requests for comment.

The HDFC board's position, as stated in Macken's letter in The Villager, is unwavering. The credit union must scrap the lease amendment, must repay the property taxes on the building, and must sublet a portion of the bank's space for revenue that would benefit the HDFC, says Macken — though Levy contests the matter of renting out the space is fraught with complications and would require significant construction work to accommodate a long-term sublet.

The HDFC board is currently seeking legal counsel and hopes to convert the building to an actual cooperative, said Macken. 

Meanwhile, as the credit union prepares to celebrate its 30th anniversary on Saturday at 4 p.m., the tenants are planning to hold a protest outside the building. 

Two banners already hang from the windows of the residences, imploring the credit union to "do the right thing" and "save our home."

"They fail to realize, or choose to overlook the fact that we are working class, long time community members...low to moderate income households," said Heredia. "We wouldn't be in this predicament if it weren't for their sly, underhanded greed."