NEW YORK – Harlem-based Homesteader FCU is the first credit union in the Empire State to team up with New York City's Department of Housing Preservation and Development (HPD) and its Division of Anti-Abandonment (DAA) to help property owners with significant tax arrears keep their buildings by providing financing and continued counseling to help them avoid falling behind on their taxes again. Homesteader had its first opportunity to leverage the partnership when it closed a $90,000 home equity loan for one of its members, Alethia Brown, a senior citizen. The money will be used to save Brown's six unit apartment building in which payment on property taxes and water bills have not been made for quite some time. The non-payment issues stem back to her husband's two strokes in 2001 and eventual death in 2002. Brown owes the city $74,000 and this amount has been hit with 18% interest because of accruing late payments. Homesteaders' mission is to help the city's Division of Alternate Management Program for Buildings. This translates into assisting numerous limited co-op buildings – previously foreclosed buildings that were converted for low-income, home ownership – with their special needs, including coping with property taxes and utilities bills, such as water. In the Brown situation, which was the first distressed, small property owner case for Homesteaders, a member of the credit unions supervisory committee, who had played an active role in the HPD, was responsible for arranging a presentation between the Homesteaders and Division of Alternate Management Program (DAMP). Conversations about helping a distressed, small property, rather a coop, resulted in the granting of the loan. The significance of Brown's case is that many senior citizens throughout the five boroughs of New York City may find themselves in the similar situation due to the city's 18.5% property tax increase, the largest in hits history. "All homeowners will be impacted, but especially seniors who are on fixed incomes and tight budgets," says Trina Heizman, manager of Homesteaders FCU. The tax increase puts them in a position of accumulating taxes in the long term, potentially loosing their property and opening them up to predatory lenders in an effort to obtain financing. Like other major cities and states across the nation, New York City was facing a $1.1 billion budget gap for the 2003 fiscal year and, at the end of June, approved a $44 billion budget for FY 2004 in which a $6.4 billion budget gap was closed. The property tax hike was just part of the solution to close the gap. Initially, the tax increase was expected to raise $2.3 billion. This was lowered by $600 million by the City Council. While an 18.5% property tax hike sounds exorbitant, it is less than the initial 25% increase proposed by Mayor Michael Bloomberg last year. Brown was assisted by HPD's Third Party Transfer in Rent Foreclosure Program. According to Michael Bosnick, assistant commissioner of the Division of Anti-Abandonment, before a tax lien sale is held by the New York City Department of Finance, the case is reviewed by the HPD to see if it can be excluded if it is deemed distressed based on housing maintenance code violations. The HPD will then spend money through an emergency repair program to correct building conditions. "We notify the owner that their buildings are in the program, discuss ways to deal with their tax arrears and invite them to make use of our services," says Bosnick. If the property owned cannot pay the taxes, the building is given to a new "responsible" owner. Property owners have 18 to 24 months to deal with their tax situation in HPD's Third Party Transfer Program. To be eligible for this program, building owners must meet certain thresholds based on the number of buildings units, the amount of tax arrears and the length of time the property has been in arrears. For a one- to three-unit building, up to three years of tax arrears is the criteria. Buildings with more units have less time, approximately one year, to workout their delinquencies with HPD. If no solution is found, tax liens are sold to a trust which hires a collection agency to obtain money from the property owner. If the owner does not pay, the building can go into foreclosure. Commenting on the assistance from Homesteaders, Bosnick says, "This is the beginning of what I hope to be a productive relationship. It's a new era for us because though we have used other types of lending institutions, we have not really worked with a credit union. We are continuing work with Homesteaders which, overtime, should result in more loans." Heizman explains that these loans are risky for many lending institutions. "Lenders, in terms of underwriting, don't see back taxes as a positive indication of someone's ability to repay a loan," she says. "I don't think anybody is rushing out to do these types of loans." "In some situations, no matter what is done, a building can be deeply in the red where the tax lean far exceeds the value of the building," says Bosnick. "No one is going to lend money on that, so the building will be transferred to a new owner. We can't work miracles, but we can find that slice of the market where we can help the owner figure a way out of their problems." In Brown's case, her building was valued at $600,000 (she and her husband bought it for $31,000 back in 1971). There was enough equity, plus income from tenants and a retail storefront, to make the loan feasible. If New York City residents, especially seniors, face difficulties in paying their property taxes due to the tax hike, more opportunities will present themselves to credit unions as they attempt to keep people in their homes. [email protected]