Mitchell-Lama Housing Explained
The Mitchell Lama housing bill was initially created in 1955 and is no longer active. Nevertheless, this housing plan created income-restricted rentals and limited-equity co-ops in some of the most desirable New York City neighborhoods, where affordable apartments were virtually nonexistent. (i.e., Chelsea, Upper East Side, Upper West Side, etc.)
For income-restricted rentals under Mitchell-Lama, the monthly rent is directly tied to the tenant(s) income. As for co-op apartments, the purchaser typically must invest somewhere between $5,000 and $25,000, which is a steal for a New York City Apartment. However, when the shareholder sells the property, he/she is only entitled to the amount they paid, plus any capital assessments, and maybe some or all of their mortgage amortization (depending on the building's rules and restrictions).
In other words, in exchange for affordable housing, the shareholder will not receive the fair market value for the apartment, no matter what the value of the property is when they sell it.
Mitchell-Lama Developments History
To help encourage the construction of Mitchell-Lama developments, developers have received tax-breaks and low-interest mortgages in exchange for implementing the program. When the program was active, developers constructed a little over 100,000 apartments spread throughout the five boroughs of New York City. Given its long history, Mitchell-Lama developments can be supervised by either the NYC Housing and Preservation Department (HPD) or the NYS Division of Housing and Community Renewal.
Over the years, some building owners have elected to go through the complex process of buying out the mortgages in the entire building, exiting and dissolving the Mitchell-Lama program for their building, to convert the units to market-rate apartments. If the owner of a Mitchell-Lama rental property chooses to be no longer subject to Mitchell-Lama regulation and exits the programs, the rental premises automatically become subject to the Rent Stabilization Law and Code.
Mitchell Lama Apartments Pricing
Since Mitchell-Lama apartments are income-restricted housing, the market value of the apartment or the neighborhood does not control the prices of the co-op or rental. Additionally, because of the tax benefits it receives, the monthly maintenance cost for Mitchell-Lama co-op apartments are always much lower than market value.
Mitchell-Lama Apartment Qualification Requirements
Whether or not an applicant qualifies to be on the waiting list for a Mitchell-Lama apartment depends on three eligibility requirements: income level, family size, and apartment size. The number of people occupying the apartment must match the number of bedrooms in the apartment. Moreover, your income cannot surpass a certain amount. Income limits for Mitchell-Lama co-op apartments can go up to $149K, while rental restrictions can go up to $95K on the higher end. Nevertheless, each Mitchell-Lama development sets its own limits.
If you're currently living in a Mitchell-Lama apartment and your household income eventually exceeds the maximum income limit, you will be required to pay a surcharge to keep your residence.
Applying for a Mitchell-Lama Apartment
1. Find a Mitchell Lama Building
The first step in getting Mitchell Lama housing is finding a building that offers the program. There is no master list for Mitchell-Lama apartments. Each Mitchell-Lama development requires you to apply separately, but you can apply for multiple developments at once.
2. Apply to Join the Waitlist
Once you find a Mitchell Lama building you'd like to live in, you'll need to apply to get on the waitlist. If you see a list you want to be on, you can apply through the HPD website. Some Mitchell-Lama Apartments have an open waiting list, while other buildings have closed lists. If and when a building opens up its waiting list, they are required to announce this in the media. However, this list is just to be entered into a lottery, to be added to the building's waiting list.
3. Check Your Application Status
After you have applied, you can check the status of each application through Mitchell-Lama Connect. Once registered in the system, you can view the waiting list number and date, and the last application was approved for each Mitchell-Lama development.
4. Wait For Your Application to be Approved
Once on a waiting list, be prepared to wait a long time. Typically, it takes anywhere from a couple of years, up to 15 years before an apartment becomes available. When an apartment opens up and assuming that you still meet the income/family size requirements, you can proceed or wait for the next available apartment. However, typically if you reject the second place, you go back to the bottom of the waiting list, or you may be removed from the waiting list altogether.
Mitchell-Lama Apartment Search Tips
1. Be Prepared To Downsize
Generally, one-bedroom apartments become available more often than two or three bedrooms. This happens because residents are permitted to upgrade their apartments if they have a change in family size. However, they are not required to downsize if their family size goes down. (e.g., a kid moves to college, etc.) As such, applicants should apply for the smallest unit that they qualify for to increase their chances of getting picked. Also, please note that Mitchell-Lama residents get their first pick at empty apartments when they become available.
2. Verify Your Income
It's important to verify your income and the building's other requirements, especially if you're on the waiting list for an apartment for longer than a year or your family size changes during the waiting period. Technically, if you no longer qualify for the apartment(s) that you're on the waiting list for, you're supposed to remove yourself from the list. However, in reality, most applicants find a way to restructure their income so that they still qualify if they are selected on the waiting list.
3. Don't Depend On Getting a Mortgage
Even though Mitchell-Lama apartments are cheap, that doesn't mean that you can bank on easily qualifying for a mortgage. Obtaining a mortgage for a Mitchell-Lama apartment is complicated and rare. Even though there's no specific regulation preventing buyers from borrowing against their Mitchell-Lama co-op shares, most banks won't do it. This mainly has to do with the fact that if the buyer stops making payments, the foreclosure process is not clear-cut under state law. To combat this roadblock, some Mitchell-Lama buildings have set up their own internal programs to lend to buyers.
4. Be Ready To Pay a Surcharge if Your Income Is Too High
Once you obtain a Mitchell-Lama apartment, you will be required to update your income information annually on the annual income affidavit form. If you, together with the other occupants of the apartment, exceed the income cap for your residence, you will be required to pay a surcharge, which is typically no higher than 50% of the monthly rent or maintenance fees.
5. Understand That Your Mitchell Lama Apartment Is Not Part of Your Estate
In Mitchell-Lama co-op apartments, the shareholder is viewed strictly as a tenant, and the apartment's sale is governed by the corporation and by state law. As such, the decedent's next of kin or executor is not entitled to sell the apartment. The New York City Mitchell-Lama rules mandate that when a shareholder dies, the proprietary lease and the shares for the apartment must be surrendered by the decedent's estate or survivors. Additionally, the rules mandate that once your shares are returned, the development will coordinate the sale of the apartment pursuant to New York City Mitchell-Lama rules. What this means is that the next of kin or executor of the decedent's estate must immediately notify the management about the owner's death and make arrangements for the removal of the property within the apartment. The estate is only liable for up to three months of maintenance payments after the property is made available for resale. Overall, an individual shouldn't buy a Michell Lama development if he or she wants to pass an apartment/asset down to their children, etc., as this is not allowed.
6. Learn the Mitchell Lama Apartment Laws & Regulations Regarding Family Members
Even though a Mitchell Lama apartment does not qualify as part of your estate when you die, that doesn't mean that your family has to immediately move out upon your death. In Mitchell-Lama co-ops, regulated by either the city or the state, there's a complex set of regulations and laws, which will determine whether a decedent's family can continue to occupy the apartment. To continue residing in a Mitchell Lama apartment, the purported successor must show that he or she primarily lived in the apartment for at least two years contemporaneously with the tenant of record. (unless they're older than 62 or disabled, then it's only one year). Additionally, he or she must meet the required financial criteria to succeed to the shareholders' rights. Lastly, it will tremendously help the successor's case if he or she was listed on the tenant's annual income affidavit as a co-applicant during the same two-year period.
Lawsuits Surrounding the Mitchell-Lama Waiting List
According to a new lawsuit, applicants on the waiting list for Mitchell-Lama apartment have been improperly removed from the waiting list and replaced with affluent candidates who bought their spots on Mitchell-Lama waiting lists.
The claimants in this lawsuit claim that they were never notified or contacted, and their spot ended up going to someone who had paid a significant amount of money to be on the waiting list.
According to an audit by state Comptroller, Thomas DiNapoli, this unfairness is a common occurrence. Specifically, the audit found that applicants paid hundreds of thousands in fees to get on affordable housing waitlists, like Mitchell-Lama developments, with little to no chance of actually getting an apartment.
Amongst a slew of other problems, investigators found that "weak oversight" was a major area of concern regarding Mitchell-Lama developments and the application process.
New Increased Oversight of Mitchell-Lama Developments
While there will still be a waiting list for the Mitchell-Lama program, there will now be increased oversight of the application and selection process. The agency has created a special unit for applicants to obtain information and also plans to hire new management companies to oversee Mitchell-Lama buildings. These proposed changes are designed to repair the broken system created by HPD and its failure to properly supervise the Mitchell-Lama program.
Mitchell-Lama Apartments Bottom Line
Mitchell Lama apartments offer extremely affordable housing to New Yorkers. However, availability is limited, and it can take years of waiting to secure a Mitchell Lama apartment so it only makes sense to apply for Mitchell Lama housing if you plan on living in NYC for a long time. That being said, if you're lucky enough to get a Mitchell Lama apartment, you'll likely never want to leave.