New York Bankruptcy Case Could Undercut D.C. Rent Control
When a 79-year-old woman living in New York's East Village found herself buried in debt and filed for bankruptcy, she probably couldn't have imagined that her story might have implications for affordable housing as far away as D.C. And yet as the United States Court of Appeals for the Second Circuit considers her case, that's exactly what some lawyers involved with the case say might happen.
The New York Times tells the tale today of Mary Veronica Santiago, who's lived in her rent-stabilized apartment for 50 years. After her husband died and she fell behind on her bills and filed for bankruptcy, the bankruptcy trustee in charge of taking control of her assets accepted an offer from the landlord to turn her rent-controlled lease into one. Rather than dodging her bills because of her lack of assets, she could now find herself out of rent-stabilized housing, or at least unable to pass it on to her son, as she'd hoped to do.
A bankruptcy court and then a federal district court ruled that her rent-stabilized lease could indeed be treated as an asset, just like a house or a car. If the appeals court upholds those decisions, the Times says, it "poses a major risk to ... the millions of other New Yorkers who live in rent-stabilized apartments."
But there's reason to believe the ripples could be felt beyond New York's borders, including in D.C.'s housing market.
"I think this case is likely to set a precedent that will be followed nationally on this problem," says Ronald Mann, the Columbia University law professor and attorney who argued Santiago's case before the appeals court.
The majority of D.C. rental housing is rent controlled; the exceptions are units built after 1975, units owned by landlords who rent out fewer than five units (or who claim special hardship), and government-subsidized housing. In the year ending June 30, 754 D.C. residents filed for "non-business" bankruptcy. That means that if the New York case is upheld and becomes a precedent for D.C., hundreds of residents here could see their rent control put at risk each year.
Joel Cohn, the legislative director at the D.C. Office of the Tenant Advocate, says it's not entirely clear whether a ruling in this case would automatically apply to the District, given certain details of the case, like the involvement of succession rights, which don't apply to D.C. rent control. "It kind of depends on if it gets decided in the trustee’s favor, and if so, how it gets decided in the trustee’s favor," he says.
But a blanket ruling in support of the idea of treating rent control as an asset could severely undermine rent control here. "If the court were to say, 'Sure, no problem,' and not attach any caveats, then that would be very bad, and it would be bad beyond New York," says Cohn. "It would be bad for D.C. and other places with rent control."
Even if the ruling doesn't apply directly to D.C., given that the law in question is a New York law (though D.C.'s regulations are similar), it could be seen by local courts as a precedent—or by landlords as a signal that they can terminate rent-controlled leases of bankrupt tenants, says Kathleen Cully, a pro bono lawyer representing Santiago.
"I think it could easily be seen as precedent," she says. "I could even more see it as encouragement to landlords."
Photo by Darrow Montgomery