A recent article in the Journal News discusses the latest developments in the Westchester County, New York fair housing settlement. For those who are unfamiliar with the situation, a lawsuit was brought by a public interest group against Westchester County, alleging housing discrimination. In order to settle the lawsuit, then-County executive Andrew Spano agreed to build at least 750 units of “affordable housing” in Westchester. This blog post will discuss the ramifications of the settlement, as well as the legal issues associated with the sale and resale of affordable housing.
Long-time Westchester residents will recall that in 1980, a similar case was brought against the City of Yonkers, also alleging discrimination in housing. While it is beyond the scope of this post to address the merits of this case (as well as the case against Westchester), the legal issues become important for potential buyers and sellers of property in Westchester. In the Yonkers case, Judge Leonard Sand ruled that Yonkers had discriminated against minorities and ordered the city to provide low-income housing in all areas of Yonkers for minority applicants.
Of course, implementation of such a remedy is far from simple, and the Yonkers case involved many years of litigation over the issue of whether the city was in compliance with Judge Sand’s directives. Unfortunately, the same issues now seem be arising in the Westchester County lawsuit. Once a municipality enters into a settlement of a discrimination lawsuit, as Mr. Spano did on behalf of the residents of Westchester County, there may be no end to judicial enforcement of a remedy. It seems unlikely that a Court will ever reach a finding that no further discrimination exists and end its supervision of the construction of affordable housing.
Our firm was retained by a minority individual several years ago regarding a condominium apartment he had purchased in Yonkers. He was approved for the original purchase and received a small subsidy loan from Yonkers (less than $20,000.00) to assist in paying his closing costs for the purchase of his one-bedroom apartment. Unknown to him, the second mortgage he signed for this government subsidy contained a provision severely limiting his resale rights. No matter how long he owned the property, he was only allowed to sell it to a person with an income not exceeding a certain percentage of the median income in Westchester County. Furthermore, his sale price also was limited to another formula based on the income of the purchaser. During his ownership period, he had married and started a family, and the one-bedroom apartment became too small for his needs. When he attempted to sell, he discovered that the small second mortgage forbid his selling his property for its fair market value, even though he had lived there for over a decade and made improvements to the unit.
Because the limiting resale clause was contained in the mortgage note, and not in the deed to his property, our firm brought a claim, based on applicable New York State case law that the clause was invalid because such a limitation clause must also be referenced in a recorded deed. The case was eventually settled and our client was allowed to sell the property for more than the formula allowed, but still for less than its fair market value.
We would advise any clients buying property requiring a deed or mortgage with limiting resale language to consult our firm prior to purchase. We will carefully review all language and counsel our client regarding any such limitations on resale price. In many cases, the purchaser will gain a financial advantage by foregoing the government subsidy so that their potential gain is not limited when the property is sold.
In summation, it remains to be seen whether widespread government intervention in the free market will achieve the desired remedy of a discrimination-free market. It might be simpler to increase penalties for discriminating against individual buyers. Finally, any purchaser who is purchasing a property with such government subsidies should be careful they are not “mortgaging” their future by agreeing to a ceiling for which they can sell their property years after their purchase.