On Tuesday, seven Harlem properties ensnared in the 203k housing scandal will be placed on the auction block. Although most of the properties foreclosed on after the scam were acquired by the U.S. Department of Housing and Urban Development (HUD), private developers are now starting to snatch them up.

In an auction October 29, a property owned by St. Stephen’s Baptist Church was purchased by Erlan Holding Company for $585,000, according to Rick Jachimiak, vice president of risk management and community investment at M&T Mortgage Company, one of the nation’s largest 203(k) lenders. Another property, 783 St. Nicholas Avenue, is being purchased by developer Jerry Migdol of Migdol Realty, who hopes to turn the four-unit building into condominiums.

This new trend alarms activists like James Lewis of the West Side SRO Law Project, a 203(k) tenant-turned-organizer. While he’s glad to see the run-down properties foreclosed on, he worries about losing them to private buyers. “There’s no guarantee that protects the tenants,” he said.

Ali Karfve, a tenant at 352 East 116th Street, is worried too. Her building is one of approximately 514 Manhattan and Brooklyn properties involved in the 203(k) scam, first exposed by City Limits [see “The Harlem Shuffle,” November 1999]. Bought by a cast of crooked realtors, these buildings were over-appraised and then “flipped” at inflated prices to local nonprofits eligible for rehab grants from HUD.

In most cases, including Karfve’s, the nonprofits were unable to keep up with mortgage payments, and the buildings slid into disrepair. “We’ve had two management companies–neither of them took care of the building,” she said. Tenants were left with rickety stairs, leaky ceilings, and no heat for months at a time. For the past year, she added, there’s been no management at all. The building’s landlord, St. Stephen’s Baptist Church, did not return calls by press time.

In 2001, flooded with stories like these, HUD came up with a plan: Rather than wash its hands of the troubled properties, it would work with the city’s department of Housing Preservation and Development (HPD) to rehab them. The system worked well for most of the properties, which were successfully conveyed from HUD to HPD and then to new owners, including, in some cases, tenants themselves. But HUD’s promise was contingent on the fact that the overpriced homes would not appeal to private buyers. And times have changed.

Seven Harlem properties owned by St. Stephen’s, more than half of which are occupied, are slated to be sold at Tuesday’s auction in the rotunda of the county courthouse at 60 Centre Street. Karfve and other tenants will be there to urge bidders not to buy their homes, hoping they will default to HUD instead. The foreclosure is necessary, she said, but “I don’t think it should have been an auction.” If HUD took title, “we’d feel more secure,” she added. “Something good needs to come of this.”

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