Understanding Resale: Part I
Understanding Resale: Part II
When you purchased shares in your Housing Development Fund Corporation (HDFC), you and your neighbors became the cooperative owners of your building. With ownership comes the responsibility of managing and maintaining the HDFC. Part of that responsibility is keeping your building affordable for yourselves and other households who will move in after you. In this issue and upcoming issues of Member News, UHAB will feature articles to help you understand your Resale Policy.
What is so special about my HDFC?
An HDFC is a special purpose housing corporation incorporated under New York State law. By forming an HDFC to create your co-op, HPD is able to sell you your building at a fixed low price (usually $250/unit) and provide other benefits including the rehab of your building and a reduction in your real estate taxes. In the past 27 years, over 1,000 HDFCs have been created to provide secure and affordable housing for nearly 25,000 residents. Today, as rents and real estate values rise, affordable housing is becoming extinct. The HDFC co-ops will remain an incredible resource of affordable housing for communities around the City only if each HDFC is careful about following the resale rules in your legal documents and the HDFC law.
What is the difference between a regular business corporation and an HDFC?
The biggest is the purpose. Regular business corporations are created to make money for their shareholders. HDFCs are created to provide housing "for persons of low income" which means that both the monthly charges (rents or maintenance) and the sales price for apartments must be kept affordable. In exchange, the City has helped by rehabbing your building, your taxes are reduced by the DAMP Tax Cap, HDFCs are exempt from city and state corporate taxes, TILs and HDFCs get free training and assistance from UHAB and others and households with very low incomes were able to get Section 8 rent subsidies at the time you bought your building. HDFCs are also eligible for specific programs like Tax Relief, low cost repair loans and DEP Forgiveness programs.
What happens when our resale restrictions expire?
Your HDFC's rules regarding the resale and transfer of apartments are found in three of your legal documents: your Certificate of Incorporation (in Article XI), your By-laws, and your Proprietary Lease. Article XI of your Articles of Incorporation details the resale restrictions imposed by HPD. These restrictions include the definition of low income for who can purchase shares in the co-op and how profit is split between the co-op and the outgoing shareholder. Depending on when the building was purchased, it's likely that this initial policy has expired. After that time you can choose to re-adopt the old definitions and income guidelines or develop new ones. However, even when the resale restrictions expire, an HDFC always will be an HDFC--the purpose of an HDFC never expires. HDFCs are always required to provide affordable housing to low income families.
The next issue of UHAB Member News will discuss what your co-op should do, and how to draft a resale policy. For more information, please contact your UHAB coordinator. HDFCs in the Bronx and Harlem may call (212) 828-2670; HDFCs in Lower Manhattan, Brooklyn and Queens may call (718) 246-9760 or (212) 479-3340.
The last issue of Member News discussed the importance of your HDFC having a policy on resale, so that when residents move and shares are transferred or when apartments are purchased either from the HDFC or a seller, the process and resale guidelines are clear. When the original resale guidelines expire (either 10, 25 or 30 years after the sale), the board must write a new policy or re-adopt the old one. While the policy will vary from building to building depending on when the building was purchased, one thing is certain--your HDFC is required to keep the resale of apartment units affordable to low-income families. This issue of Member News will discuss the role of income limits in resale policy for all new members of the HDFC.
How do income limitations apply?
HDFCs are required to provide housing for people who are low-income, as stated in Article II of your Articles of Incorporation, which contains the following or similar language: "The Corporation is organized exclusively for the purpose of developing a housing project for persons of low income." All new members must meet income eligibility. This means their annual income must not exceed the limit that was determined by the HDFC. In some HDFCs, the income limit is six times the annual maintenance charge (seven times the annual maintenance for families with 3 or more dependents); in other buildings it is a percentage of the New York City Area Median Income (AMI). The income limit figures are used as maximum numbers, though an HDFC can set its income limits lower by amending the bylaws.
What is the area median income?
The income limits are determined by the Area Median Income (AMI), a number based on all New York City incomes, and calculated annually by HUD. The AMI is the "middle" number of all of the incomes for the given area; 50% of people in that area make more than that amount, and 50% make less than that amount. The income levels are percentages of that AMI number: any household income at or below 80% of the AMI is considered "low-income"; above 80% and up to 120% of the median income is considered "moderate-income." Above this is "middle-income."
What are current income limits?
The commonly understood and accepted definition of low-income is earning 80% or less of the median income for the metropolitan area. UHAB encourages using 80% of AMI as the maximum income limits, to maintain the affordability for those seeking housing. In some cases, HDFCs may actually be allowed to house people considered "moderate income," or up to 120% of median income, so those numbers have been included as well. Keep in mind, 120% of AMI is the maximum allowable definition under HPD's new regulations. (See chart for current income limits.)
2005 Maximum Income Standards for New Residents*
(Including shareholders, tenants and subtenants)
Number of People in Family 80% of median: common cut-off for "low-income" restrictions 100% of median:
within the range of "moderate-income" restrictions 120% of median:
cut-off to meet "moderate-income" restrictions
1 $35,150 $43,938 $52,725
2 $40,200 $50,250 $60,300
3 $45,200 $56,500 $67,800
4 $50,250 $62,812 $75,375
5 $54,250 $67,812 $81,375
6 $58,300 $72,875 $87,450
7 $62,300 $77,875 $93,450
8 $66,300 $82,875 $99,450
*Figures are based on Area Median Income for NYC
What do these numbers mean for my HDFC?
Federal HUD guidelines establish that 30% of annual income should go towards housing. An average maintenance amount in an HDFC building is between $110 to $125 per room. For a 4.5 room apartment, if the cost per bedroom was $110, then the monthly maintenance would be $495; the annual maintenance would be $5,940. If this was 30% of the person's income, this apartment would be affordable to someone making $19,800 a year, or who is at 45% of the AMI. If the cost per room was $125, the price for a 4.5 room apartment would be $562.50 monthly; the annual maintenance cost would be $6,750. If this was 30% of the person's income, this apartment would be affordable to someone making $22,500 a year, which is at 50% of the AMI.
According to the income limits chart, this HDFC would be affordable to someone who is at 35% of the AMI. As you can see, this is well within the range of affordability.
Since the typical HDFC is so affordable, UHAB encourages HDFCs to use 80% of median income as the upper limit on the income requirements, and for buildings to seek and encourage families with incomes lower than that figure to become new members. HDFCs are created as "public purpose corporations" to provide housing for low-income households. In exchange for carrying out that public purpose, HDFCs receive benefits such as receiving the DAMP Tax cap or other tax abatements, purchase of the building from the city at a low price, and receive no-cost or low-cost financing for building rehab. HDFCs are exempt from City, and New York State Income Tax and other taxes related to the purchasing and financing of your building. All of this is done in an effort to help HDFCs to meet their public purpose and keep apartments affordable to low-income households. For your part, adopting and following a good resale policy that sets income limits at 80% of AMI will give others in need of affordable housing the same benefit that you now enjoy.
The next issue of UHAB Member News will discuss resale procedure. If your HDFC needs to amend its resale policy, please contact your UHAB coordinator. If your HDFC is located in Lower Manhattan or Brooklyn please call (212) 479-3320 to set up a meeting. If your HDFC is located in the Bronx or Upper Manhattan please call (212) 828-2670.
For Spanish translation of these articles, contact Emily Ng at 212-479-3318 or ng@uhab.org
