Objective

To determine if the New York City Department of Housing Preservation and Development (HPD) ensured that managing agents properly accounted for application fees received and, if applicable, returned fees to applicants or turned them over to the Office of the State Comptroller as abandoned property. Our audit covered the period April 30, 2013 through July 10, 2019.

About the Program

HPD is the nation’s largest municipal housing preservation and development agency. Its mission is to promote the quality and affordability of housing.

The Mitchell-Lama Program (Mitchell-Lama) provides affordable rental and cooperative housing to middle-income families. In New York City, there are 93 HPD-supervised Mitchell-Lama rental and cooperative developments with approximately 46,500 total apartments. Each development is governed by a Board of Directors, which may hire a managing agent to handle day-to-day affairs. Under the Rules of the City of New York (Rules), at the time of our scope, Mitchell-Lama developments collected application fees of up to $200 per applicant. (In August 2019, this was reduced to a non-refundable $75.) These fees are held indefinitely unless an applicant requests a refund or the application is rejected by the development or HPD. Generally, as vacancies occur, apartments should be offered and awarded to applicants based on their order on the waiting list, which is updated to reflect the withdrawal, rejection, and approval of applicants. Developments close their waiting lists when enough applicants are available to fill foreseeable vacancies. Waiting lists are periodically re-opened and new applicants are selected by lottery.

Our audit at three housing developments in Manhattan focused on waiting lists that were current as of May 2019.

Key Findings

• HPD is establishing lengthy waiting lists, and managing agents are collecting fees from hundreds of applicants. However, few of these applicants are obtaining apartments.
• HPD has not established criteria as to the number of applicants who should be selected and placed on waiting lists when conducting lotteries for the various developments.
• Waiting lists contained numerous inaccuracies related to applicant status that could preclude eligible applicants from obtaining scarce housing units and, conversely, could allow ineligible applicants to obtain units.
• We found weak controls and a lack of HPD guidance over application fees at the three selected developments, resulting in mishandled fees and discrepancies in fee payment statuses, ultimately impacting applicants’ statuses on the waiting lists.

Key Recommendations

• Utilize turnover rates when establishing waiting list sizes. Make these rates public so that applicants have this information available when making a determination about whether they want to apply or remain on the waiting lists.
• Establish policies and procedures instructing managing agents on how to account for application fees, handle refunds (from lotteries prior to the application fee change), and canvass waiting lists; and periodically review for compliance.