Foreclosed Co-op Returns to Rent Stabilization

Facts: Landlord Federal Home Loan Mortgage Corporation (FHLMC) foreclosed on the mortgage of a cooperative building. FHLMC had acquired a $1.45 million mortgage lien on the property in 1986 when it was still rent-regulated. In 1989 the building converted to co-op ownership. The co-op corporation later defaulted on the mortgage, and FHLMC bought the building in foreclosure. FHLMC sought a court ruling that the building remained exempt from rent stabilization. During that time, FHLMC didn't collect rent and refused to offer renewal leases to former co-op owners and to tenants who moved in after the conversion. Court: Landlord loses. The building was exempt from rent stabilization only as long as it was owned as a cooperative. The foreclosed co-op building reverts to rent stabilization when a co-op is dissolved by foreclosure. Once the building is no longer operated as a co-op, the landlord's goal again becomes profit, so tenant protections are justified. As a result of the foreclosure, tenants must not only still pay their rents but must also repay the money they borrowed to buy the shares assigned to their apartments.

Federal Home Loan Mortgage Corporation v. DHCR: NYLJ, p. 26, col. 5 (12/29/95) (Ct. App.; Kaye, CJ, Titone, Simons, Bellacosa, Smith, Levine, Ciparick, JJ)