Six Real Estate Developers Indicted for Defrauding Affordable Housing Tax Exemption Program

Edited by: TJVNews.com

New York state prosecutors on Wednesday charged six property developers and their companies with taking advantage of a lucrative tax break intended to spur housing construction, as part of the Manhattan district attorney’s new focus on fighting fraud and tenant harassment in the housing and real estate industry, according to a report in the New York Times.

Making the announcement of the indictment were Manhattan District Attorney Alvin L. Bragg, Jr. and New York City Department of Investigation Commissioner Jocelyn E. Strauber. The six real estate developers Joel Kohn, Michael Ambrosino, Alen Paknoush, Mendel Gold, Ioan Sita and Gheorghe Sita and their corporations were charged with defrauding New York State’s 421-a tax exemption program meant to promote affordable housing, and collectively reaping more than $1.6 million in illegal property tax benefits.

The investigation revealed that these developers, who owned six different Brooklyn apartment buildings, allegedly violated the terms of the 421-a program by submitting falsified documents to the City and State, claiming the designated affordable units would be rented to qualified tenants. Under the terms of the program, developers agreed that those affordable apartments can only be rented to income-qualified tenants approved by the New York City Department of Housing Preservation & Development (“HPD”).

The submission of false documents violates the terms of the tax program that played a major role in shaping development in New York City over the past 50 years.

Instead, the apartments were rented out at higher rates for years — sometimes more than $1,000 per month above the approved affordable level — to renters who did not qualify for affordable housing.

Under the terms of the program, known as 421a, those apartments were meant to be rented to people who qualified for affordable housing, at lower prices, the Times reported.

The 421-a program was a tax benefit designed to incentivize the creation of affordable housing within new multi-family apartment buildings. The program grants generous tax breaks to property developers who agree to reserve a certain percentage of the building’s apartments as affordable units.

Tenants would apply through the City’s Housing Connect portal — also known as the affordable housing lottery — and their applications would be presented to HPD for review and approval. Affordable units can only be occupied by tenants approved by HPD.

As alleged in court documents and statements made on the record, from 2011 to 2019, the defendants violated the rules of the 421-a program and submitted documents to the City and State falsely attesting that they were renting the designated affordable units in accordance with 421-a rules. In reality, they were renting units at higher rents to unauthorized tenants who had not been approved by HPD.

The defendants are charged in five separate New York State Supreme Court indictments with multiple charges including Grand Larceny in the Second Degree, City Criminal Tax Fraud and Offering False Instrument for Filing in the First Degree.

This indictment comes days after D.A. Bragg announced the Office’s first-ever Housing & Tenant Protection Unit, which targets systemic criminal harassment of tenants and abuse of government programs by landlords and developers.

“These developers allegedly abused a government program meant to provide New Yorkers access to desperately needed affordable housing. Not only did they illegally charge substantially higher market rents for years, but they did so while personally reaping the benefits of generous property tax abatements. When I announced our Housing & Tenant Protection Unit last week, I said that we would take a targeted approach to complex and pervasive criminal activity that diminished our already limited stock of affordable housing, and this case is an example of just that,” said District Attorney Bragg.

The Times reported that the program, which costs the city about $1.77 billion in annual tax revenue, has drawn fierce criticism from local politicians and housing groups who say it amounts to a giveaway to the real estate industry, and critics say it is routinely exploited by developers.

Jocelyn Strauber, the Commissioner of the Department of Investigation, said, “At a time when affordable housing is crucial for New Yorkers, and for the City’s recovery from the pandemic, these landlords, as charged, enriched themselves by fraudulently obtaining over $1 million in tax credits from the City that were intended to promote affordable housing.

Instead, it is alleged that these landlords charged higher rents to New Yorkers, made no attempt to determine if they qualified for such housing, and made misrepresentations to the City to obtain tax credits to which they were not entitled. DOI and our partners at the Manhattan District Attorney’s Office and the City Department of Housing Preservation and Development will continue to protect affordable housing benefits for New Yorkers who are eligible for them and hold accountable those who exploit these tax credits for their personal gain.”

Developers relied on the tax break program to build hundreds of thousands of apartments and condominiums. The NYT reported that recent iterations of the incentive have required developers to include some rent-stabilized and below-market rentals.

They aggressively lobbied for the program’s resurrection after state legislators allowed it to expire in June, but were unsuccessful, according to the NYT report.. They say some sort of tax incentive is necessary to encourage development and solve the city’s housing shortage. Still, they acknowledge that the program has not done enough to address a growing affordability crisis, the Times reported.