The program had a simple premise: seize housing from delinquent New York City property owners and give it to responsible ones.
But after it was created in 1996, the program, known as “third-party transfer,” became controversial, with critics accusing the city of improperly targeting Black and Latino homeowners. On Monday, the city said it had agreed to pay $60 million to settle parts of a federal class-action lawsuit that argued the seizures had illegally stripped dozens of homeowners of their equity.
“It’s an example of a program that may have had good intentions but went wrong and was really quite improper, harmful and unconstitutional,” said Gregg Weiner, one of the lawyers representing the homeowners.
A spokesman for the city’s Department of Housing Preservation and Development, Andrew Stern, said in a statement that the city “maintains that the transfer of properties did not violate the former property owners’ rights” but was settling to “resolve this longstanding litigation.”
The settlement must still be approved by a federal judge. But its announcement on Monday adds to the debate over how the city should handle deteriorating buildings run by negligent owners.
Mayor Zohran Mamdani, an advocate for tenants, has repeatedly said he wants to take property away from bad landlords and give it to “responsible owners.” His administration has enthusiastically cheered moves that appear to exemplify that dynamic.
But allies of landlords and the mayor’s critics have chafed at what they say is government overreach and pointed to the city’s struggle to keep public housing in good shape.
The goal of the transfer program, the city says, is to improve conditions for residents. The program is supposed to target properties that have housing code violations and owe a significant amount in property taxes or other city charges.
After foreclosing, the city transfers ownership to a nonprofit organization known as Neighborhood Restore, which then finds an affordable housing developer to take over the properties.
Critics have said the program casts an overly wide net in Black and Latino communities in the Bronx and Brooklyn in particular. A 2019 investigation by the City Council found that many of the homes seized did not meet a city definition of “severe financial or physical distress.”
In the decades since the program was created, the city has gone through 10 “rounds” of targeting and seizing properties, ultimately transferring more than 590 properties that include more than 7,300 homes, according to the lawsuit.
The settlement covers only properties taken during the 10th round of seizures, in 2017 and 2018. In that round, the city transferred the titles of 64 properties consisting of about 839 units, according to court documents.
The program has essentially been on pause since 2019, and city officials say they are working to improve it.
Critics have scrutinized the program’s “block pickup” element, which allowed the city to seize not only the target property but all of the housing on the same block, if the owners of those other buildings owed even a modest amount in property taxes.
The lawsuit was brought in 2019 in Federal District Court in Manhattan by several New Yorkers who said the city did not pay them what their homes were worth, or at all, in violation of constitutional protections against private property being seized by the state “for public use, without just compensation.”
The main plaintiff, McConnell Dorce, had owned his home in the East Flatbush neighborhood of Brooklyn since 1977 and it had been “free and clear of any mortgage” since 2012, the suit said.
But at some point after 2012, Mr. Dorce fell behind on water and sewage bills and entered a repayment program. His property was then seized without notice, the lawsuit said, even though the home did not meet the city’s definition of “distress.”
The city continued to accept his payments “without telling Mr. Dorce that his property had been taken,” according to court documents. Mr. Dorce never received any compensation, according to the suit.
He died in February, before the lawsuit was settled.
The settlement comes three years after the Supreme Court ruled that states violate the Constitution’ if they retain more than what the taxpayer owed when they seize and sell private property.
Mr. Stern, the housing department spokesman, said city officials were working to address the points raised in the lawsuit. Mr. Mamdani’s housing plan released this year includes a push to revamp the program, and a bill is pending before the City Council.
Councilwoman Pierina Sanchez, a Bronx Democrat who leads the Council’s housing and buildings committee and is a lead sponsor of the bill, said the changes would eliminate “block pickup” and create a better system to identify the “worst of the worst” owners.
Alexander Simkin, another lawyer for the plaintiffs, said the proposed reforms “don’t cure the fundamental defect” in the program.
“You can’t take people’s properties in a racially discriminatory way, and if you’re taking more than the city’s owed, you need to compensate people for that,” he said.
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