Contesting Relocation Liens: Innocent Landowners Get Burnt
June 13, 2017
by Adam Leitman Bailey and Dov Treiman
In a decision stronger on emotion than analysis, the Court of Appeals in Rivera v. HPD1 recently eliminated a building owner’s rapid path to determining the validity of liens placed against its building for housing preservation & development’s expenses in relocating the building’s tenants when the building became the subject of a city agency-issued peremptory vacate order. Assuming that the landlord is always at fault in such situations, the court allowed but a single avenue to contest the liens’ validity.
Under existing law, where a building suffers an injury sufficient to require city-ordered vacating of one or more apartments and the city believes the landlord to be at fault for the building’s injury, the city’s Department of Housing Preservation and Development (HPD) can pass along the relocation expenses to the landowner via liens peremptorily filed against the building. Those liens become the equivalent of mechanics’ liens, enforced through foreclosure proceedings authorized by the state’s Lien Law through RPAPL Article 13 foreclosure proceedings.
There is both before and after Rivera, no procedure to challenge these liens except through state Supreme Court. This is unfortunate as the Civil Court’s Housing Part has both the expertise and capacity to adjudicate both the finding of landlord fault and the justifiability of the city’s expenses, routine matters that courts adjudicate when enforcing the laws against landlords.2
The Issue Before The Court
Rivera should only have addressed the issue actually before the court—whether an owner could use the summary discharge procedure of Lien Law §19(6) (Supreme Court order to show cause to challenge the lien) to address the validity of the amount of the lien. Instead, the court purportedly barred any address of the merits of the lien in such procedure, so long as the notice of lien appeared facially proper, writing, “Summary discharge addresses only the facial validity of the notice of lien and leaves disputes regarding the claimed expenses in the underlying liens to be resolved at a foreclosure hearing or trial.” Reiterating this position, the court cited to pre-RPAPL/pre-CPLR3 precedent, stating, “the resolution of disputes regarding the expenses claimed in a lien, should be decided after a trial, and not in a summary proceeding.” The court does not explain how CPLR 410’s mandate for trials in special proceedings4 does not mandate trials.
The New York City Administrative Code (Code) confers upon HPD the duty to:
provide and maintain tenant relocation services…for tenants of any privately owned building where the displacement of such tenants results from the enforcement of any law… (for) the health, safety and welfare of its occupants. Such services shall consist of such activities as [HPD] may deem necessary,….5
That is, when tenants are displaced from their building because a vacate order has been issued due to unlivable conditions, HPD must assist tenants in relocating in anyway HPD deems “necessary, useful or appropriate.” The Code further goes on to state that when HPD has “incurred expenses” in assisting these tenants in relocating, the owner of the building is required to reimburse HPD for those expenses:
[I]f the conditions giving rise to the need for such relocation arose as a result of the negligent or intentional acts of such owner, or as a result of his or her failure to maintain such dwelling in accordance with the standards prescribed by the housing or health code governing such dwelling.6
The Unexplored Question
While Rivera clearly considers HPD’s duty to provide relocation services and its ability to house people, it does not consider whether there were “negligent or intentional acts of such owner.”
Not all vacate orders are the fault of the owner of the building. When New York City began actively promoting switching heating from oil to natural gas,7 the inevitable effect was to replace the relatively rare heating oil-based building explosions with increasingly common natural gas-based explosions. While owner negligence may cause such explosions where the explosion took place, such negligence is not assured and neighboring buildings’ destruction is not even plausibly their respective owners’ fault. The resultant vacate order is therefore not an automatic indictment of the vacated building’s owners maintenance practice. However, the innocence of the owner or of the tenants (who themselves may have caused the explosion) is not a consideration in HPD’s invocation of its relocation services. Statutorily, however, it is a consideration in the question whether HPD should place a lien on the vacated building for reimbursement. If HPD has acted wrongly in rushing to judge the owner at fault, Rivera’s quoted language from the reimbursement ordinance’s sponsors about “greedy landlords” is entirely inappropriate. Rivera makes no mention of any legal policy reason for putting victim landlords in the same cumbersome procedural boat with greedy landlords.
Where HPD has undertaken relocation, the Administrative Code allows the department to recover relocation expenses8 from the building owner in one of two ways. First, it may bring an action against the building owner.9 Second, it may place a lien, governed by the law regulating mechanics liens, on the building,10 without first bringing an action against the building owner.11
Rivera holds, “that any dispute about the reasonableness of claimed expenses in an otherwise facially valid notice of lien must be resolved through a foreclosure trial.” This is unfortunate as prior appellate case law had demonstrated how inflated and unreasonable these expenses typically are.12 However, the only dispute before Rivera was whether the summary discharge procedure was available. Rivera’s elimination of all other procedural vehicles is dicta. Not presented to the Rivera court was whether a landowner could use the quiet title procedures of RPAPL Article 15, for which the practice commentary notes, “The fact situations that can arise under Article 15 of the RPAPL are almost infinite.”
Rivera gives no reason to dispute this assertion and does not fully preclude using Article 15 where an owner is in a better commercial position with its lenders using a quiet title proceeding than a foreclosure proceeding. Similarly, a CPLR 3001 declaratory judgment action could be available, except that many judges disfavor declaratory judgments when there is some other adequate remedy at law.13 One may ask whether forcing a foreclosure really is an adequate remedy at law or whether the quiet title action is the actual adequate remedy. At oral argument, HPD conceded that “foreclosure proceedings are actually rare in these case.”14
HPD has promulgated a set of rules governing the process of providing relocation services to displaced tenants,15 stating that “HPD will pay the cost of shelter services in such an amount as HPD deems adequate for relocatees residing in temporary shelters,”16 including “relocation payments.”17 The rules define “shelter services” as “temporary shelter relocation services offered or provided to a relocatee by HPD and define “relocation services” as “all relocation services offered or provided to a relocatee by HPD, including shelter services.”18 The rules do not define “temporary” or “adequate.” Thus, under these laws, an owner who is deemed the cause of a vacate order will be subject to a lien in the amount of all “relocation services” with no ceiling as to amount.
Limiting The Liens
The NYC Council passed these liens in 1967, amended them in 1997, and codified as NYC Admin. Code §26-305. Rivera acknowledged that the statute permitting HPD to place liens on buildings in these situations, “was enacted in response to what was perceived as ‘a calloused attitude’ by landlords ‘towards providing services to the tenants’ and in order to prevent landlords from using code violations to evict that the could not otherwise legally evict.”19 The court continued that the 1997 amendments to the statute, “endeavored to make these reimbursements easier for HPD to obtain by allowing HPD to place a lien on a rolling basis while relocation services are being provided.”20Rivera opined that HPD has broad discretion in this area because the statutes intention was to “place the cost of relocating unfortunate tenants on the shoulders of owners who have neglected their buildings or who are using the city’s administrative functions to accomplish their own greedy financial purposes.”21
However, Rivera never considered the increasingly frequent scenarios in which the owner of the liened building is also a victim. In spite of the possibility that the landlord suffers liens even though it was utterly innocent of the causes that gave rise to the dislocation could render all of Rivera, dicta, nothing in Rivera’s own language would allow it to be so distinguished.
Rivera states that “[n]one of the relevant statutes contain any provision limiting the amount of time shelter services may be provided to displaced tenants, and reading any such rule into the process would contravene the legislative intent.”22 Ignoring the innocent landowner scenario, Rivera posits that such limits could potentially lead building owners to “delay remedial action in order to exceed any prescribed time period.”23
Limits on ‘Rivera’
Rivera only directly limits using Lien Law §19(6) to discharge relocation liens on the basis of the substantive validity of the lien. Presumably, the case also forbids using that procedure to contest whether the landowner is sufficiently at fault and that the liens are not substantively valid. What procedures does Rivera therefore leave?
Under Lien Law §20, the owner may discharge the lien by paying the amount of the lien into court, plus interest or, in lieu of cash, a bond. Under Lien Law §59, the owner may serve a notice demanding the city commence a foreclosure proceeding to enforce the lien. If the city fails to bring such suit or if in such suit the owner establishes that the lien is improper for any reason, including both excessiveness and lack of owner’s liability, the lien will be discharged. While both of these actions are in the nature of pay first, fight later, typically the liens are for only a fraction of the value of the building in question and worth the battle. However, the legal expenses in bringing such suits can exceed the value of the liens.
Rivera’s language notwithstanding, quiet title procedures and declaratory judgments remain apparently available without a pay first, fight later.
Relocation liens are not the only liens HPD can peremptorily place against premises. Under NYC Administrative Code §27-2125, HPD can hire its own contractor to repair violations and under §27-2144(b) place them as liens against the property, subject to the identical enforcement procedures as in Rivera. These liens known as “emergency repair program” (ERP) liens are notoriously vastly more expensive than in private industry and under Rivera uncontestable except as above noted, unless the city chooses to bring them by court action rather than simple filing.
In deciding Rivera, the Court of Appeals was clearly picturing slumlords and not even considering the possibility of legitimate victimized businesspeople. Thus, the decision has a punitive cast to it. At least until the Court of Appeals hears a case with a faultless landlord, Rivera is likely to remain the law. However, other, cost prohibitive procedures are available for innocent landlords to receive some measure of justice although not mentioned in the opinion. Immediately upon a lien being placed on a building or workers on orders of the government sent in to do repairs or book hotel rooms, the landlord should run to state Supreme Court for injunctive and declaratory relief asking a judge for a hearing on whether the landlord caused the fire or refused to do a repair. Unfortunately, until our court administrators create a better policy or the Legislature acts, we will be living in a land where due process and therefore justice is denied.
1. 29 NY3d 45 (2017).
2. See generally, New York City Civil Court Act §110(a).
3. The RPAPL, EPTL, and CPLR came into effect on Sept. 1, 1963, L. 1962, Chapt. 308.
4. Under CPLR 101, CPLR Article 4 applies to all special proceedings in civil litigation except where the statute that describes the special proceeding calls for something else. Nothing about the Lien Law or the RPAPL contradicts CPLR 410’s call for a trial of disputed issues of fact.
5. Admin. Code §26-301(1)(a)(i)-(v).
6. Admin. Code §26-305(1).
7. www.scientificamerican.com/article/swapping-nyc-residential-heating-oil-for-natural-gas/; www.nytimes.com/interactive/2015/10/04/nyregion/gas-explosions-new-york.html.
8. The Code gives a non-exhaustive list of what expenses HPD shall be reimbursed for: “…departmental costs, bonuses, moving expenses or other reasonable allowances given to induce tenants to relocate voluntarily.” Admin. Code §26-305(2).
9. Admin. Code §26-305(3).
10. Admin. Code §26-305(4).
11. Matter of Gibor Associates v. City of New York, 399 N.Y.S.2d 84 (Supreme Ct. NY Cnty., NY Special Term Part I July 15, 1977); Retek v. City of New York, 14 A.D.3d 708 [2d Dept. 2005] (both standing for the proposition that HPD may bring an action to recover relocation expenses, however, the bringing of an action is not a prerequisite to the placing of a relocation lien on the building.).
12. For example, Enriquez v. HPD, 129 A.D.3d 405 [1st Dept. 2015] (reversed by Rivera).
13. James v. Alderton Dock Yards, 256 N.Y. 298, 176 N.E. 401(1931).
14. Oral Arguments pg. 4 line 8.
15. 28 RCNY §18-01.
16. 28 RCNY §18-01(b)(6).
17. 28 RCNY §18-01(c). (“A relocatee may be eligible for the following relocation payments…Moving Expenses…Storage Expenses…Relocation Allowance Payment for Personal Property.”)
18. 28 RCNY §18-01(a).
19. Id. (Citing Dept. of Relocation Memorandum in Support of Local Law No. 15, at 1 [Oct. 19, 1967]).
20. Id. (see Local Law No. 65, Report of the Infrastructure Division at 4 [May 12, 1997]).
21. Id. (Dept. of Relocation Memorandum in Support of Local Law No. 15, at 3 [Oct. 19, 1967]).
22. Rivera, supra.