October 21, 2013

"This is not what bankruptcy is about.... What’s next? Are they going to start going after food stamps?"

Argues a lawyer for a woman who filed for bankruptcy with $23,000 in debt, whose landlord — not among the creditors — stepped forward with an offer to buy out her rent-stabilized lease for an amount equal to her debt. It's worth it to the landlord because, under NYC's rent stabilization law she pays only $703 a month for a place that would go for thousands in the current market. She's 79 and has lived there for 50 years.

The legal question, pending before the 2d Circuit Court of Appeals is whether the lease is an asset like a car that can be part of the bankruptcy estate or whether it's like a welfare benefit (which would be exempt).
The widow’s lawyers argue that a rent-stabilized lease is a public assistance benefit, just like Social Security or disability payments, and should be exempt from the bankruptcy estate. Treating it like an asset, the lawyers said in court documents, undermines the intent of rent-stabilization laws in New York designed to protect tenants deemed in need of assistance with housing....

“It’s an unfair money-grab,” said David B. Shaev, the New York state chairman of the National Association of Consumer Bankruptcy Attorneys. “To remove this foundation, this safety net, it’s unconscionable.”
You have to read pretty far into the linked NYT article to see that the landlord in this case is not trying to throw the woman out. His offer allows her to stay for the rest of her life. He does, however, want to block her 50-year-old son (who lives with her) from having "succession rights" to the place. Nevertheless, the article ends with a quote from the old woman:
“I’m afraid to find a white paper on my door,” she said with her head down, tearing up as she tugged at the edges of her plastic-covered chair.
Any tears for the young people who are trying to live in NYC, looking for apartments and stuck entering a housing market skewed by the 2.2 million people in rent-stabilized places? No, because Mary Veronica Santiago is a specific person, crying here for you, and you're not supposed to notice that her real concern is for a middle-aged man who'd like to live out his years in one of the cheap apartments that make other apartments so insanely expensive in NYC. And no one cries for the creditors, owed $23,000. They're just credit card companies.

It’s an unfair money-grab... it’s unconscionable....

Why is a benefit that comes at the expense of a private landlord equated with "a public assistance benefit, just like Social Security or disability payments"? I know welfare benefits are paid for out of money that comes, via taxation, from private citizens, but that is pooled money, collected according to whatever tax policies the legislatures have seen fit to adopt. Government may create valuable rights for tenants under rent-stabilization, but the value is extracted from one individual or entity — a particular landlord. Isn't it strange to call the landlord's loss of income a public assistance benefit?

ADDED: Reason's Matt Welch is also talking about this: Like me, he highlights the son's interest. ("That's right — in New York City, you can put your rent-stabilized apartment in your will, and hand it off to the next generation of $703-a-month payers.")

49 comments:

Ann Althouse said...

Meade, reading this post out loud to help me proofread, makes 2 jokes:

Post: "No, because Mary Veronica Santiago is a specific person, crying here for you..."

Meade: "Don't cry for me, Santiago."

Post: "unconscionable...."

Meade: "I'm seeing 'scion' in unconscionable. The 50-year-son..."

Putting the scion in unconscionable.

Bob Ellison said...

If we let the rental markets free, lots of people would have to leave their NYC apartments. They might move to Jersey City, or worse, to Poughkeepsie. They might start thinking conservative thoughts, not having to live over a nightclub and roughhouse with a cab driver just to get a coffee. They might buy guns and start going to church.

Maybe that's part of the game. Keep rent control in effect, because otherwise people will realize just how awful it is living in the city, and leave, and go right.

BDNYC said...

Why do you perceive the benefit as coming from one individual landlord? To the extent that market rate rents are distorted upwards, market rate renters are also paying for the benefit.

Oso Negro said...

Rent control is great for the lucky looters.

Ann Althouse said...

"Why do you perceive the benefit as coming from one individual landlord?"

The case is about one person who has filed for bankruptcy and whether something is an asset of hers to be part of the estate. The amount is $23,000 to be provided by the landlord. Her lawyer would characterize that amount as a public assistance benefit like welfare, but it comes straight out of his pocket, which isn't the normal way public assistance works.

You might say that he recoups his losses from other private persons, the lessees of other of his apartments whom he must charge more. That is certainly what happens in the market.

The overarching political scheme is a transfer of wealth from newcomers to longterm residents, and the landlord is doing the dirty work for the government.

Portraying the benefit as coming from a more general pool like that helps make Santiago's argument, but it is still not like the taxation process that funds welfare benefits. Can you picture a proposal for taxation that would make the young pay much higher taxes and keep a cap on the rates charged older folks?

CWJ said...

Succession rights? That would seem a big step towards asset territory.

And what about the son? Was he unwilling or unable to help his mother with her debts? The article doesn't say. And the author doesn't seem curious to find out.

Regardless of how the court case plays out, no one is threatening to evict the woman. So coupled with the above observation, quoting the woman's unfounded fears indicates that the author is more interested in creating a sympathetic victim than straight reporting. No surprise there.

Bottom line. Mother and son thought they could gain monetary advantage - kind of like their subsidized rent - by her declaring bankruptcy. That it turned out messier than they expected is an unpleasant surprise for them, but hardly makes them victims.

Somebody said...

Don't you mean "creditors" when referring to the credi card companies?

Patrick said...

Creditors, not debtors. It's not that early.

SGT Ted said...

If the rent control is a public assistance benefit for the woman, then her son isn't entitled to it, unless he is on the lease. If not, then he gets to pay higher rent, just like he would have if he had moved out of moms place.

Rent control is progressive style slavery. There are plenty of people that cannot live where they desire because they cannot afford it.

Ann Althouse said...

"Don't you mean "creditors" when referring to the credi card companies?"

Oh, wow, sorry. Fixed.

I did that twice.

Michelle Dulak Thomson said...

I am curious about her son. He seems to have been born the same year she moved into the apartment. Has he been living with his mother all his life, or did he perhaps move back in soon before or soon after his father's death? (And if the latter, was it to help his parents, with an eye to acquiring that lease, or both?)

Hagar said...

An asset is an asset.

How is this different from a liquor license?

CWJ said...

Michelle,

Obviously, you and I have more curiosity than the reporter.

Bill, Republic of Texas said...

Althouse asks:

Can you picture a proposal for taxation that would make the young pay much higher taxes and keep a cap on the rates charged older folks?

Of course. It's called ObamaCare

Ann Althouse said...

"Of course. It's called ObamaCare"

That's vaguely funny, but health insurance prices are have income-based subsidies and I believe the rates go up with age, so it is not what is happening.

Kevin said...

"That's vaguely funny, but health insurance prices are have income-based subsidies and I believe the rates go up with age, so it is not what is happening."

You need to pay attention, Ann - that is exactly what is happening. You get far more in ObamaCare subsidies when you are old than when you are young (assuming that you qualify for subsidies in the first place - a married couple making $62,041 is too "rich" to qualify for subsidies").

The rates do go up with age, but far less than do expected medical expenses.

ObamaCare is intended to be an enormous income transfer from the young and healthy to the old and not-so-healthy. That's why signing up healthy young people is so critical to the success of ObamaCare.

Peter said...

"The widow’s lawyers argue that a rent-stabilized lease is a public assistance benefit, just like Social Security or disability payments, and should be exempt from the bankruptcy estate."
BUT it's not just that the benefit comes from an individual landlord and not from the public purse, it's also that the benefit is not means-tested. Therefore it's not welfare.

What the benefit has in common with welfare is that its value is created by, and would not exist without, government. But, so is the value of a NYC taxi medallion. And these are openly bought and sold all the time- they're market goods (even though they depend on a scarcity that wouldn't exist without government regulation).

In any case, creating precedent that makes it more difficult for landlords to move rent-stabilized apartments to market-rate ones can only make NYC's already sclerotic rental market even less responsive to supply and demand, while forcing up rents for those not lucky enough to land in a rent-stabilized apt.

Perhaps even the NY Times could understand that?

Kirk Parker said...

Althouse, it most certainly is what is happening with O'care. Yes, the rates do go up with age, but not nearly as much as they would if left to the [actuarial] market. It contains huge subsidies for the old (and others whose cost to insure are high), paid for by the young.

Terry said...

The landlord would collect a windfall if the court makes the old lady accept the money.
Assuming that the apt. was rent controlled when the current landlord bought the building, the current landlord took that into account when he negotiated the price.
Does he really deserve a windfall? He didn't work for it.

Hagar said...

Terry,
You are making shit up.
And it is not for you to decide who "deserves" what; especially sight unseen.
Just what is the law here?

Hagar said...

Then we can discuss whether the law makes sense or not.

Any statute, ordinance, or regulation issued by a government entity and using the word "control" will be an attempt to freeze a situation in time.
But New York is not the place it was in 1945, or whenever these ordinances were enacted, and the consequences of "rent controls" now probably are largely counter-productive of what the proponents intended back then.

Insufficiently Sensitive said...

“It’s an unfair money-grab,” said David B. Shaev, the New York state chairman of the National Association of Consumer Bankruptcy Attorneys.

How about the unfair money-grab herein called 'rent control'?

Whereby elected officials buy renter's votes with the resources of selected victims called property owners, from whom the government/renters alliance simply confiscate the earnings capability of their real estate?

Where's their voice in this trial?

n.n said...

Are there rent-stabilized beachfront properties in Hawaii?

There are two problems here. First, integration of economically diverse people requires subsidies and thereby causes market distortions. Second, welfare has displaced the mutual commitments and responsibilities previously held by family and friends, but especially family.

The form of welfare (or redistributive change) practiced in civilized societies has good intentions with bad or myopic goals.

Levi Starks said...

I fail to see how it can simultaneously be both a welfare benefit which can't be taken away, and at the same time a tangible asset which can be passed down to her 50 year old son. (whom it would appear is living rent free in NYC)
I think they have her over a barrel. If that 50 year old son wants to inherit the rent stabilized apartment I suggest he cough up the money to pay off his moms bills, (he's probably the one that ran them up anyway)

Terry said...

Hagar-
No one knows what the law is going to say, yet.
If we just want to say it's unfair for the old lady's son to get the windfall of a rent-controlled apartment, we have to ask if the landlord would be getting a windfall if the son does not get the rent controlled apartment. How much value would it add to the building? A million bucks?

Insufficiently Sensitive said...

Does he really deserve a windfall? He didn't work for it.

It wouldn't be a windfall, it would partly restore to the owner - who absolutely did work for it - some of the forcibly withheld earnings value of the property he worked for.

n.n said...

re: displacing family and friends

Promoting a culture where sex and taxation are the priorities has its consequences. First, there are millions of human lives terminated annually. Second, there is progressive poverty as wealth is recycled.

Thorley Winston said...

Sounds like a fair solution: her creditors get paid, she remains in her rent-controlled apartment for the remainder of her life and her landlord gets to put it on the market after she dies.

cubanbob said...

That's vaguely funny, but health insurance prices are have income-based subsidies and I believe the rates go up with age, so it is not what is happening."

Not vaguely funny but rather bitterly funny. ObamaCare for the young and healthy is the equivalent of the young and healthy buying a term life policy at a fifty year old's rate so the sixty year old can get a reduction.

As for rent control why isn't this considered a form of eminent domain with the landlord being compensated by the City for otherwise being forced as a private party to provide a public good?

Levi Starks said...

When someone dies, the children are not liable for the debts of the parent, The estate however is. The lawyers are arguing that the rent stabilized apartment is part of her estate. If she want's to maintain that asset then the court should require her to charge her son a rental amount that would allow her to pay off bankruptcy judgment. Because at the current time the rent is stabilized to her, not to him. She is providing a benefit to her son to which he is not legally entitled. We also need to know if there are other siblings. It would seem that the disposition of the apartment would need to go through probate to determine who the real beneficiary should be.

Terry said...

Insufficiently Sensitive-
Let's say the landlord bought the building and payed $10 million for it, knowing that the apartment was rent controlled. The judge decides in his favor. Building is now worth $11 million. How is that not a windfall? How did he work for it? Like a gambler who 'works' for his casino winnings?

Michael said...

Terry: Purchasers buy rent controlled buildings on the premise that the renters will either move or die. They have time and actuarial tables on their side. It is not a "windfall" to get market rents at the end of the rent control term. This instance makes it clear that some renters view their rent control status as an asset that can be transferred at will. That is not the idea.

The Godfather said...

In further response to Terry's "windfall" argument -- if buying out this tenant's succession rights really increased the value of the building by $1 million, then did the trustee in bankruptcy breach his fiduciary duty by agreeing to sell the asset for $23,000? Shouldn't the trustee have demanded $1 million?

Mitch H. said...

Why would a rent-controlled apartment be inheritable? Is it a title of nobility? Are they arguing that it is unalienable, entailed? That's the only way I can see it not being a legitimate element of her estate, if such things are indeed inheritable.

MadisonMan said...

You know, if she sold all those horrible knick-knacks behind her in the photo, she could put a dent in her debt.

I find myself nodding in agreement with Levi Starks.

Carl said...

Why am I expected to be a priori sympathetic to a 79-year-old woman plucking tearfully at her plastic chair?

A life is a life. I see no reason to value her soul more than that of any other human being, merely because it's cased in a wrinklier body and she has to watch her spending.

Furthermore, she's had 60 years to plan for this situation, to save, to think ahead. I'm supposed to be sympathetic because when she was young, strong, energetic and beautiful -- she didn't spare a thought for the fact that one day she'd be 79 and none of those things? Bah.

Terry said...

From the article:
"The trustee in Mrs. Santiago’s case has proposed an arrangement in which the landlord would pay her debt, pay the trustee and his lawyer, and allow Mrs. Santiago to live out her years in her apartment at a similar rent under a non-rent-stabilized lease “with no succession rights” that could otherwise have allowed her to pass the apartment on to her 50-year-old son, a personal trainer who lives with her and helps support her."
-and-
"The landlord is a limited-liability company whose owner, James V. Guarino, referred questions to his lawyer."

So the son can legally get the apartment, according to the Times. And the owner is a real estate investment company.
They have lawyers. I bet they paid a lawyer to examine all the lease obligations before they bought the place.

Michelle Dulak Thomson said...

Mitch H.,

Why would a rent-controlled apartment be inheritable? Is it a title of nobility? Are they arguing that it is unalienable, entailed? That's the only way I can see it not being a legitimate element of her estate, if such things are indeed inheritable.

I think that rent-controlled leases can be passed down as inheritance to other people who have been living in the apartment with the leaseholder. In other words, I don't think you can will your fantastically-cheap Manhattan apartment to your daughter in Tennessee, but you could to your daughter who had been living in Tennessee, but is now living with you.

What I don't know is how long the successor to the lease has to have been living in the apartment, whether s/he has to be a blood relative, &c. The people who actually do this sort of thing are understandably reluctant to talk about it.

CWJ: Agreed. That story didn't just bury the lede, it erected a concrete vault over it.

Tim said...

If it is inheritable, it is an asset, and can be used to settle the debt.

Simple enough it seems to me.

Rocketeer said...

How much value would it add to the building? A million bucks?

That added value will be taxed going forward. Let the state then take their revenue windfall and redistribute as the citizens collectively please. That would at least be a much more honest and transparent form of "welfare" than rent control.

Kirk Parker said...

Shorter Terry:

If the Mafia stops shaking you down, you're left with a higher (effective) disposable income. Why should you get this windfall???

Terry said...

The manager of an LLC gets investors to give him a lot of money, say $100 million bucks. He decides to buy an apartment building in NYC. At $100 million, you bet that everybody does there homework. Hundreds of pages of analysis are written by some very smart people. The conclusion is that using the money to buy building A, with some rent control apartments in it, will return 3.5%/yr. The investors look around, find that their best alternative only returns 3.0%.
Sale.
Now the manager of the LLC finds a way to increase the to return 4.0% by essentially forcing the conversion of a rent control apartment to market rate.
Clever move, if he can get a judge to agree.
I don't see any high-minded adherence to entrepreneurial principles here. Next week the guy might try to shut down the Cuban nightclub across the street from the building because the sight of all those coloreds coming and going is exerting downward pressure on his rents.

Kirk Parker said...

Terry,

What does your hypo have to do with the instant case?

Kirk Parker said...

I mean, unless you're somehow insinuating that the management of the building somehow engineered Ms. Santiago's bankruptcy...

Terry said...

I am just pointing out that if, as seems likely, the real estate LLC that owns the building bought it with the assumption that the old lady's apartment would remain under rent control indefinitely, than the LLC would receive a windfall if the apartment is no longer under rent control.

Kirk Parker said...

That's still a So What. If you bought land in PA or ND not knowing that fracking was going to increase the value of it, should the state be able to wrest it from you on the basis you didn't know this was going to happen?

Terry said...

That's a terrible analogy, Kirk Parker.
A better analogy would be: you buy land that does not include the mineral rights. Eureka! There's oil! And it's a gusher!
Then you go to court and convince a judge that for some obscure legal reason you just invented, you do have mineral rights!
Windfall or not?

Mitch H. said...

"Windfall" is the battle-cry of the man who holds concealed the Labor Theory of Value in his heart. Possession belongs only to the virtuous, whose every gain must past muster among the elect.

You talk and talk of windfalls, but this woman is the one who has been unjustly enjoying the fruits of her landlords' labor and capital for decades, politically reaping that which she neither earned nor built. She was gifted with a title by the all-powerful City of New York - a claim on the property of another by her status and antecedents. She is an Ancient Apartment-Dweller, and that gives her rights and perquisites over what is not hers. It is a sort of corvee upon the property-owners of the city, whose employees must do maintenance on the property for less than cost, who must pay property taxes to the city from a constrained rent, who must pay mortgages from that same reduced rent, materials for upkeep, and so forth.

MrGotham said...

Levi Starks hit the nail on the head. The tenants want it both ways. They want to claim title to the apartment at well below market rates through the lease so that it can be passed down to the son, and only him, - a clear economic asset. But now that she is bankrupt and the landlord has agreed to monetize that asset that is part of her bankruptcy estate they are claiming it is a social welfare benefit that is beyond the reach of the bankruptcy court. Can't have it both ways folks, it's either a personal asset or it isn't.

Ann, the "not paying attention" comment touches on the con at the very heart of Obamacare. The act specifically states that the difference between premiums between the old and the young is capped at 3X when market rates would be on the order of 5X. This is how the subsidies are "paid for" and why the Obamanauts are so desperate to sign up the kids in their 20s - the math on the whole program collapses without them. It's why they are hiring kids to walk around in their underwear promoting the program and why you are seeing things like this: http://www.zerohedge.com/news/2013-10-22/brosurance-obamacare-just-hit-newer-lows
And it is why every insurance executive in the country is having a cow watching this web site fiasco because they know that no Millennial weaned on the Amazon and iTunes experience is going to sit through a healthcare.gov nightmare that makes the DMV look slick in comparison. The only people that will sit through it are the people too sick to get healthcare now. It is an adverse selection nightmare and will destroy the program.


This premium subsidy is another massive intergenerational transfer of wealth to the boomers.