Mortgagee Must Notify Buyers of Overcharge Judgment

Facts: Mortgagee brought a mortgage foreclosure action after landlord defaulted in the building's mortgage payments. Mortgagee also asked court to rule that it wouldn't be bound by a DHCR rent overcharge order affecting one rent-stabilized tenant in the building. In 1995 the DHCR had ordered an overcharge refund of $57,000. Landlord didn't appeal and reduced tenant's rent in her next renewal lease in accordance with the DHCR's order. Shortly thereafter tenant received a number of confusing and conflicting letters and instructions from various persons claiming ownership of the building and entitlement to collect rent. Mortgagee sent tenant a three-day rent demand for supposed back rent and claimed that it wasn't bound by the DHCR rent overcharge order and that tenant had no right to offset the rent. Court: Mortgagee loses. The rent stabilization code provides that a landlord who buys a building through a judicial sale won't be liable for prior landlord's rent overcharge unless notice has been given. Mortgagee must notify any prospective buyers at judicial sale of the DHCR's rent overcharge order concerning tenant's apartment and their potential liability. Any foreclosure judgment must also include a provision to preserve tenant's lien against the building resulting from the DHCR order.

51 Spring St. L.P v. Lobro Assocs.: NYLJ, p. 21, col. 5 (12/30/96) (Sup. Ct. NY; Gangel-Jacob, J)