SPEAKER_02: 0:00

Greetings, everyone, and welcome to the co-op and condo insider. We have breaking news. This is your co-host, Richard Solomon. I'm joined by Jeffrey Mazel, who's our host and overall expert on all things co-op and condo. But right now we have a matter of such urgency that we're doing a special broadcast on a topic that's very important to every co-op and condo owner uh that's in New York City. There's a New York City Council Bill number 407 called the Reasons Bill. And Jeff, who's our expert, is going to talk to us about all the implications of that bill. So let's get started right away. Jeff, how are you? And and welcome as a guest, uh which you're usually the host. And thank you for sharing all of your expertise, especially in an important and timely topic such as this.

SPEAKER_01: 0:51

Yeah, so so th thank you, Rick.

SPEAKER_02: 0:53

So what do we what are New Yorkers facing right now? There's a bill that's pending. It's it's up for what? On what date? And what are the what is 407? Why does it matter?

SPEAKER_01: 1:06

So Intro 407 uh is was introduced in the year 2024. Bills are good in the New York City Council for two years. Um, the New York City Council session ends December 31st, 2025. And on January 1st, there'll be, as everyone knows, a new mayor and there'll be a new city council, of which I believe 90% of the council will remain the same. But traditionally, there's a year-end rush at the city council to get bills passed. And December 2nd, 2025, at 250 Broadway, and I believe hearing room one, the Housing and Building Committee, uh chaired by uh councilmember Perina Sanchez will be uh will have a hearing on intro 407. Uh I the irony of this bill is uh I don't know if that's the right word, this bill has been lingering for eight years, and I've been uh dealing with it for that time, and I have a rich, rich history uh in dealing with it and vast knowledge of the terms of this bill.

SPEAKER_00: 2:24

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SPEAKER_02: 2:55

What does this bill require? What is it what is it asking boards to do?

SPEAKER_01: 3:02

So intro 407 is called a reasons bill. And a reasons bill will require a board member to uh or the boards themselves to give reasons for the rejection of an applicant. And and and and let me step back a minute, because uh the issue of rejection of co-op applicants is a non-issue. It hardly ever happens, and when it does happen, I assure you, 99.9% of the time, the boards are acting lawfully, and they're acting on advice of counsel and other professionals. So, so this is a bill that's a solution in search of a problem that is non-existent. This bill will create far more problems than currently exists. So there is a theory out there that bills that that that boards operate in the in the shroud of secrecy, and they make decisions that nobody knows why. And again, some housing advocates feel we have to get to the bottom of this, and we have to expose these boards because in their minds, uh, all these untoward things and discriminatory behavior is happening. That is a falsehood. I'm doing this 40 years, and quite frankly, it is something that I find upsetting because board members are elected, just like the city council members that are that are going to be attending this hearing are elected by the people either in their district or in their co-op.

SPEAKER_02: 4:52

So but but but but but but the co-op people are compensated for the service by and large, isn't that correct?

SPEAKER_01: 5:01

Well, yeah, well that that that that's that's a great point. So here you have volunteer co-op board members, and 99.9%, as I said, are well-intentioned, uh want to do the right thing, and just want to get engaged in a very important process. Because remember, the co-op, you know, you watch the national news, and that's what's going on in Washington or somewhere else in the country, or in Ukraine, or Israel, uh faraway lands, then you follow state, and then you follow city, and that's your streets and your lights. You follow your co-op board, that's your home. That's where you live. So these people uh have an incredibly serious task. And to have the New York City Council come in and impose unending, unfunded mandates, and that's a whole nother show. But also, uh, even considering a burdensome, unfair, vindictive bill, punitive bill, such as 407, is is an insult uh you know to all board members in the city of New York.

SPEAKER_02: 6:14

All right, so let's let's break it down. What are the requirements of compliance for the board members to comply with or the board itself as a whole? What are they required to do in this particular proposed piece of legislation?

SPEAKER_01: 6:28

Right. So before I do that, I just want to say right now, uh, one of the reasons we say, as advocates for the co-op boards, uh, you don't need this is because if someone is aggrieved and feels they were discriminated against, they can go right to the Human Rights Commission and they will uh get an investigation and they will either get a right to sue or not right to sue, probable cause finding or not. Uh the instance of that happening is almost never, because again, board members are very careful in this endeavor. So they have a free bite at the apple to have a agency come and investigate the claim. And I deal with claims all the time, mostly you know, uh reasonable accommodations, someone needs a for a handicap or or something like that. So this bill requires the board in a very tight framework to provide a sworn statement indicating every single reason why the uh application is rejected. And it's got to provide it in detail. And then the statement, and this is really the kicker, has to be sworn. It has to be in like an affidavit, a court document uh for something like this. And it's unprecedented that a volunteer uh would be required to sign a sworn statement uh with such serious consequences. So we feel that you know this bill just threatens and fundamentally challenges how board co-ops. What volunteer that do you know, Rich, would sign a sworn statement that will open them up to litigation and lawsuits? Uh why why would they do that? You know, so and the internet.

SPEAKER_02: 8:36

No, actually it's actually hard, it's actually hard enough to get volunteers in almost anything, whether it's PTA, church synagogue, you know, environments, whatever it is where you need volunteers, it's hard to get them because most people are trying to, you know, work and take care of their families and uh throw on uh you know just being a quote regular volunteer, uh, but to add all these extra burdens and the need, I guess, now for legal advice uh will probably create a lot of expense, no doubt, right?

SPEAKER_01: 9:11

And insurance issues. So I I I've surveyed I've surveyed boards over the last few weeks. I said, who would be willing to sign this? And I haven't gotten one. So I don't know mechanically how that could ever work unless you hire somebody and pay them to swear to the statement as an officer of a corporation. So that that that that is a very high bar, unreasonable demand. And by the way, just it gets worse. If you miss a reason in your sworn statement, you can't bring it up later. I I know they're amending that, and that's the big giveaway in the negotiations. So they're treating this you know as if the board is guilty until proven innocent, and it's a fishing expedition to to uh to catch boards either making a technical mistake or maybe they write something that somebody doesn't like, and it is an invitation uh to litigation, and and the bill is actually an invitation to litigation, and I'll get into some of the reasons for that, but uh the bill will increase lawsuits, and we know that because we actually on this very show interviewed Tim Foley of the Builder Realty Institute in Westchester, and he said there's been an increase incident in claims and an increase uh incident in cost to the co-ops, and more people are getting rejected because if everything's disclosed publicly, you can't make any accommodation. If if you need a FICA score of 700 and so in 699, they're they're not going to be accepted to your co-op. And he even led the show and said he had a co-op that in 20 years never had a rejection, and then they have three rejections. So you you extrapolate that onto well, what happens when there's a claim and it goes generally now to insurance and a DNO policy, directors and officers, but the insurance industry is going to see there's a whole new layer of risk here, and either the premiums will go through the roof, or there'll or there'll be no uh coverage for these types of claims. And uh just another uh aspect of the bill, if you violate the bill, uh you're subject to call subject to civil penalties up to$25,000. That is extraordinary.$25,000 per occurrence? Yes, up to$25,000. And that's extraordinary. Per occurrence. Yes. Wow. And there is no insurance for civil penalties. So, you know, it's it's just risk all around. And I think um I think the bill is is vindictive in nature, it's accusatory in nature. If you read it, it's as that as harsh as a bill can get. And and again, go ahead.

SPEAKER_02: 12:29

Go ahead. Uh so let's talk about the pass-through cost now, because you're you're really highlighting all of these things that are it's increased insurance, increased risk, increased compliance, increased legal fees. Obviously, those costs are gonna go somewhere. So I gotta ask the obvious question: where are those costs going?

SPEAKER_01: 12:50

Well, uh, yeah, as I say in every shareholder, it goes to the shareholders, exactly. Um, so now you have either no insurance or exposure on civil penalties. If you read the nature of the document that has the sworn statement that has to be submitted, I think you need to be a lawyer to write it. It is, you know, it is a very detailed legal document and a detailed legal pleading. So, you know, I was joking around with our Bar Association. We were calling this the Attorney Full-Time Employment Act. And that that's going to increase costs. If you have property managers, they're exposed. And if they're handling your transfers, they're going to raise fees on you. And another extraordinary aspect of this legislation is there's a legal fee provision, meaning if a aggrieved applicant hires a lawyer, the co-op could be responsible, statutorily responsible for their legal fees. And what happens in the, and by the way, those are usually reserved for extremely harsh, extraordinary situations. So to here's another level of liability and exposure that um that's going to cost you. So, you know, you're going to get a a cottage industry of attorneys who are going to represent uh applicants who've been rejected. And it doesn't matter the nature of the case because you know what? Any co-op in their right mind would usually settle for a nuisance value at a certain point. And I just want to add one thing also. Um, you know, board members, as we said, are volunteers. And I think we saw this a little bit with Tim when we we interviewed him last week. I mean, I'll give one example. I I have a case where a board uh had a human rights claim, and uh one of the board members was individually named. The man is, you know, in his in his 70s, he has prostate cancer, he's a nice guy. I don't even think he understands you know this process in in its in totality. And he was calling me every day because he couldn't sleep at night, you know, and this was literally ruining his life. He's a retired man, he's a grandfather. And what about volunteers like that? Why should he have to live with this exposure when, again, there's no discernible benefit to anybody in the city except for the attorneys and people that are just looking for a quick buck?

SPEAKER_02: 15:39

Well, not only that, but you know as well as I do that these lawyers will be hiring straw buyers, you know, who have like a 698, you know, FICA score or whatever it is, just to have them get rejected so they could bring a lawsuit. So one of the questions I'm gonna ask you is like, let's talk about the financial vetting and certain things like what that the income ratio and some of the other criteria that are going to be part of this whole inquiry and and verification process.

SPEAKER_01: 16:16

Yeah, so again, um my experience, and it's 40 years, and I represent 25,000 units of housing. I've supervised probably, I don't know, 10,000 closings. I get calls every day, and this is the number one issue I get calls on. What do we do? Because boards understand uh protected classes. Boards understand uh what they're doing and the importance of what they're doing. Uh the people that don't understand this are the people behind the statute who, and I by the way, I've looked up the organization, I won't mention names. You know, it's a$4 million year corporation. The CEO of the organization makes six figures, and they're housing advocates, and they're not aggrieved uh buyers of co-ops. This is just to them another housing issue, and it's business as usual, and somehow they think this is a good idea. So applications are carefully vetted. Uh the boards are well versed in their in how to calculate debt-to-income ratio. Uh, they know about uh credit score fees, they know about uh credit reports, and they take it all very seriously because this is one of their charges, this is their business, and they do it a lot. Um and they interview the shareholder or the applicant, I should say. So this is a serious process that's done with great deliberation, great care. And as I said, most of the time, uh people are admitted, and boards will bend over backwards to allow applicants to come in. If there's a situation where they are considering rejection, they usually will call counsel and I'll advise them. If someone's in a protected class, they know to be careful because they don't want to expose the board and the co-op to liability. But this statute, every case is potential liability.

SPEAKER_02: 18:26

So under the statute, what are the mechanics of paperwork like and and the timing? So what like like give me like the the so the board meets, they get their thing, what do they have to do? How is it disclosed? Who gets it? How is all that contemplated in the legislation?

SPEAKER_01: 18:44

Well, the legislation contemplates and puts in great detail what needs to be in the sworn statement. Um and it's basically, if you read it, I mean it's every single thing. And this this brings up a whole nother issue that when the bill was originally introduced in 2017 was not as I'll call it as prominent an issue as it is now. And and that has to do with privacy. So if somebody comes to a co-op and their credit score is, you know, I don't know, 500, 550, very low, and they get denied for low credit. Do I put the score in or I don't put the score in? If I don't put the score in, um, am I being vague? Have I violated the statute? If I put the score in, have I violated privacy laws? Because that's private information. They don't make the debt-to-income ratio. You know, if they submitted false information, and I I I, you know, again, that's that's ripe for lawsuits too, because I I was actually speaking to a colleague of mine who works in Westchester, and he said, what's happening now is in Westchester they they kind of check the boxes. It's not really uh this detailed sworn statement. And one of the boxes is false information, which happens all the time, by the way, all the time. And now the seller gets hold of that and says, Um, I'm keeping you down payment. You know, no before the buyer would have been denied, and the seller would have said, Okay, I gotta return your down payment because you got denied by the board. Now they're saying, Well, you submitted false information. Now I know it, and now I'm going to sue uh the prospective, I mean the prospective buyer is going to sue the seller for his down payment back, but guess he's all guess who he's also gonna sue or she? The co-op board. Because he'll say or she'll say, I didn't submit anything false. They misread it. You know, I mean you can say whatever you want, but now you've opened the co-op to a whole new level of litigation. Look, this is sensitive, this is these are sensitive issues. This the this is private information. You know, these are papers that are shredded as soon as we're done with them. And now you're you I'm gonna tell the world as a co-op board member on a sworn statement that that John Doe doesn't have the right credit or doesn't have uh, you know, he doesn't make enough income to live here, and uh you just exposed everybody.

SPEAKER_02: 21:27

Right. And you also know that using NICEF, the electronic filing system, um, even though you're gonna redact account numbers and financial information, uh if you're putting your defense in an answer, in discovery responses, pretrial exhibits, all which go online, uh doesn't that actually hurt the buyer because then it becomes public record that they're not financially viable, viable, and that it's you know, and then you can look at public records in your process. So in a sense, once you're burned by one cob, you can be burned again and again, no?

SPEAKER_01: 22:03

Yeah, I mean, I I I guess, but you know, well, again, what what one one additional case is one too many. And yeah, as Tim was telling us, uh Tim Foley, you know, the the incidence of claims have gone up because there's more, there's more juice, there's more things to work with. And co-op boards, again, are the you know, one when when you see your name listed in a complaint at any level, it's a very bad day for a volunteer uh board member. So I yes, I think a plaintiff or an applicant who would bring a case like that, I I don't know. Maybe they don't care. Maybe they don't care. You know, maybe they're just looking for the buck at that point.

SPEAKER_02: 22:54

Is is the intent just to force boards not to deny people? Is that really what's going on in your mind?

SPEAKER_01: 23:03

I mean, I've heard that, uh, but I again from what I what I've gathered from in other jurisdictions where they've done this, boards are not gonna do that. Boards will double down and will, you know, they just passed the uh criminal uh uh disclosure act where you can't do criminal background checks until after they're approved. And I thought nobody's gonna do the criminal background check because it's just another layer. It's work, it's expense, it's time. Most of my co-op boards are doing the search because they feel it's important. So they're not going to accept people, uh, and they'll double down. And they they're gonna treat these applications exactly as they treat them now.

SPEAKER_02: 23:49

So we have so many problems. We have increased rejections, we have uh a quell against people wanting to volunteer and run for boards, increased paperwork, increased insurance. Um where's the groundswell of opposition, considering that this seems to be all bad and almost no good? Where's the groundswell of opposition? And what can people do to create the groundswell of opposition that's going to be needed uh very soon?

SPEAKER_01: 24:19

Okay, so as as is always the case with co-op issues, they're very niche issues. Uh, you know, um most shareholders probably don't even know uh that boards uh are being subject to this. Um but there is a tremendous pushback right now in the co-op community. Uh I know probably dozens and dozens of board members are submitting are submitting a testimony for the hearing on December 2nd. If you go to the New York City website, New York City Council website, there is a mechanism to submit testimony um uh digitally. In addition, there should be, and I'm expecting, a large turnout of of board members at the hearing on December 2nd. And when there was, you know, there was a hearing December there was a hearing in November 2017. And there was a huge, huge pushback uh against this legislation, and it's been eight years since it's been reintroduced. I'm told from people I've spoken to uh who are familiar with city council members, they understand this this bill is uh very unpopular and very dangerous for co-op boards. Yeah, you know, I I I I I I always read about how uh the the mayor, the new mayor, talks about affordability of New York City and fairness. And I can't think of a bill uh that is the polar opposite of both of those uh goals. Uh it will ruin affordability and make co-ops more expensive and and it's unfair to board members and boards and co-op the co-op community in general. Co-op community is is one of the most high-functioning, best uh run forms of housing in New York City. It's run by volunteers. There's no profit in it, okay? Nobody gets paid. Uh the budget is balanced based on the expenses. So you would think something like that would be cherished by the New York City Council and cherished by the new mayor. Um, but that has not been the case, and that has not been our experience the last few years.

SPEAKER_02: 27:00

But where do these fines go to? Do they go to the city budget?

SPEAKER_01: 27:05

That's a great question. I I was thinking that the other day. Generally they do, they go to the general fund. I know local law 97, and again, another show there, uh, the fines go to the general fund. In fact, I had a colleague looking at uh budget projections for New York City, and they put in their local and local law 97 fines. Uh DOB fines are counted on to balance the budget. Uh, so I'm sure this would be something to to balance the budget. It it doesn't go towards anything else. And by the way, this bill also, it's purely punitive in nature. There's no education aspect. There's no compromise, there's no mediation aspect to it. It is purely punitive in nature. It exposes the boards to to uh you know uh I guess legal fees, penalties, increased insurance costs, on and on. But there's nothing that solves the problem. It's just let's hit the co-op over the head with the hammer, and and that's that's the goal. Other than that, it doesn't accomplish anything.

SPEAKER_02: 28:17

Well, I I know I always raise the Eighth Amendment, but excessive fines, it's it to me it sounds almost like an excessive fine issue, um, you know, on top of maybe other constitutional challenges such as equal protection, because other citizens of New York State um who live in co-ops are not going to be treated as severely as those in New York City, which means that there's not equal protection under the law. Um, so those may be challenges that need to be raised before December 2nd. Again, where is this? When is this where and when again so people know where to go? Uh December.

SPEAKER_01: 29:00

December 2nd, 250 Broadway, New York City Council hearing room. I'm not sure what room. They might move the rooms because I think they're expecting a large crowd. If you can come down, uh, you know, there is strength in numbers, and it is important for city council members to see that people are in opposition to this bill. Um, just also to get to your point, there's already talk about uh legisl uh litigation on this. Uh lawyers are already uh have already outlined a sort of a path uh to try to stop this legislation. It is uh it is extreme in its its messaging and its terms, and it's something that is worthy of a rigorous judicial review.

SPEAKER_02: 29:52

Well, the other thing is um is there a list of the sponsors of this bill so that uh their offices can be called to Show the impact of what may be good intention but poor execution?

SPEAKER_01: 30:08

Well, I I I I don't think it is good intentions. I think it is a response to a certain uh group of advocates um and who they either agree with or serve or or do you know there is a relationship at some level. Uh maybe they think this is a good thing to stop discrimination, but it certainly has never been borne out. So if you go to if you Google Intro 407, New York City Council, Intro 407, there's a website called Legistar, and you can see all the sponsors. And I glad I'm glad you brought up the sponsor. Because the sponsor of the bill is uh the public advocate, Giamatti Williams, who was uh when we testified in November 2017, he was he was a council member at the time, extremely hostile to our panel, which was advocating against this legislation. I mean, we had no malintent. We were there giving our views as the real stakeholders here. But before that hearing, and and this is um this is interesting to me, uh, you know, I I personally met with a staff member about this bill because when I first read it, my jaw dropped. I couldn't believe anybody would think uh something as harsh and punitive as this against a volunteer community uh is is a good idea. And I met with his, I guess his legislative person, I don't know his title. We I sat in his office for hours and I suggested numerous changes to make it fairer and maybe palatable. And to my, I guess not to my surprise, but he did not make one change in the bill, and the bill still reads exactly as it did in 2017. So to me, that is not, he's not looking for stakeholders' inputs. He's driven by other other forces that are not the stakeholders, whether they're ideological.