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NY Real Estate Residential
Ruling Favors Renters With Regulated Apartments
From the Wall Street Journal of Thu, 20 Nov 2014 21:06:00 EST
Mary Santiago in her apartment earlier this year.
Mary Santiago in her apartment earlier this year. Julie Platner for The Wall Street Journal

About 1 million New Yorkers who live in rent-regulated apartments won broad legal protections to file for bankruptcy without fear of losing rights to their homes under a decision issued Thursday by the state’s highest court.

The case involved an 80-year-old East Village woman, Mary Santiago, who filed for bankruptcy in 2011 because of credit-card debt, and found her rights to her apartment in jeopardy.

Tenant advocates characterized the decision by the Court of Appeals an important victory. They said that many low-income tenants had declined to seek protection from bill collectors available under federal bankruptcy laws because they feared of losing their apartments.

John P. Campo, a partner at Troutman Sanders LLP who represents the bankruptcy-court trustee in the case, said the trustee has all along “simply followed the law as he and others have construed it,” and were supported by lower courts.

“While we disagree with the result as a matter of statutory construction,” he said, “the Court of Appeals has now spoken.”

Standing next to her lawyer, Kathleen G. Cully, Ms. Santiago said that she “started crying like mad,” when she heard of Thursday’s decision. She said she was “happy and content” and planned to live in her apartment “until the Lord calls me.”

“I have been worried since it began,” she said.

In the 5-2 decision, the court’s majority found that rent-regulation protection was a “local public assistance benefit” protected from bankruptcy, even though it wasn’t specifically listed in a state law enumerating assets exempt from bankruptcy.

“When the rent-stabilization regulatory scheme is considered against the backdrop of the crucial role that it plays in the lives of New York residents, and the purpose and effect of the program, it is evident that a tenant’s rights under a rent-stabilized lease are a local public assistance benefit,” Judge Sheila Abdus-Salaam wrote for the majority.

The court rejected the option of finding that the rent-stabilized lease was an asset owned by Ms. Santiago—and one that could be sold to raise money to pay off creditors.

In a dissent, Judge Robert S. Smith, said the court ignored the “generally accepted meaning” of a public assistance benefit, which he said was a “common synonym for ‘welfare.’”

He said that he doubted that any single tenant in a rent-stabilized or rent-controlled apartment would say that they receive public assistance as a result.

“I do not think I have ever seen or heard the words “public assistance” used to refer to such a program before this case, and the majority cites no example of such a use,” he wrote, in a dissent joined by Judge Susan Phillips Read.

Ms. Santiago has lived in her two-bedroom apartment for half a century. When she filed for bankruptcy, seeking relief from about $23,000 in credit debt, the court treated her rights to her apartment as an asset.

The judge approved the sale for more than $140,000 of her rights under rent stabilization, including the right to pass it on to her son, to the investor who owned her apartment. He in turn agreed to allow her to live there for the rest of her life.

The determination was eventually appealed to the Second U.S. Circuit Court of Appeals, which asked the state’s highest court to clarify the meaning of the state statute at issue.

Ronald Mann, a Columbia Law School professor, who argued on behalf of Ms. Santiago at the Court of Appeals, said that he expected the federal appeals court to now direct the lower courts to follow the legal determination by the state court.

After the ruling he said Ms. Santiago’s case “becomes a routine bankruptcy.”

“The reason this case is important is that in future bankruptcies trustees will not be using the bankruptcy process to remove tenants from rent-stabilized apartments,” he said.

The case drew broad attention. Tenant advocates and state legislators filed briefs, along with a joint brief by state Attorney General Eric Schneiderman and Mayor Bill de Blasio . All supported Ms. Santiago.

“Today’s decision means that countless rent-regulated tenants living in my district and across the City who have fallen on hard times, can take advantage of the financial relief offered by bankruptcy filing without the very real fear of losing their homes,” said Democratic Assemblywoman Linda B. Rosenthal of Manhattan.

Write to Josh Barbanel at

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