Dunhaven Complaint - NHLP



UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF NEW JERSEY

NEWARK VICINAGE

ESSEX-NEWARK LEGAL SERVICES

BY: César E. Torres, Esq. (CT 7312)

Genia Philip Sookram, Esq. (GP 8307)

5 Commerce Street, 3rd Floor

Newark, New Jersey 07102

Tel. (973) 624-0009 Fax: (973) 624-0106

Attorneys for Plaintiffs

CONNIE FOREST, VERA GILLUS, JEAN WRIGHT, :

MARGARET PEART, CYNTHIA PERKINS, ROBERT :

RODGERS, EVELYN BOWMAN, & the BRICK TOWERS :

RESIDENT CORPORATION, :

:

Plaintiffs. :

v. : Civil Action No.____________

:

MEL MARTINEZ, in his official capacity as SECRETARY, :

UNITED STATES DEPARTMENT OF HOUSING : HON. _____________________

AND URBAN DEVELOPMENT, & the UNITED :

STATES DEPARTMENT OF HOUSING AND :

URBAN DEVELOPMENT, : VERIFIED COMPLAINT

:

Defendants. :

I. PRELIMINARY STATEMENT

Plaintiffs Evelyn Bowman, Connie Forest, Vera Gillus, Jean Wright, Margaret Peart, Cynthia Perkins, Robert Rodgers, Evelyn Bowman and the Brick Towers Resident Corporation bring this action against HUD Secretary Mel Martinez and the United States Department of Housing and Urban Development (HUD) in furtherance of Plaintiffs’ efforts to prevent the demolition of Brick Towers, a 324 unit apartment complex primarily located at 685-715 Dr. Martin Luther King, Jr., Blvd., Newark, New Jersey. Instead, Plaintiffs seek to modernize and preserve Brick Towers as a long term affordable housing resource for themselves and other residents of the greater Newark community.

Plaintiffs, most of whom have lived at the property since it opened for occupancy in 1970 and who moved in because of its reputation for quality housing in the area, know first hand the high quality of craftsmanship that went into the construction of Brick Towers. Brick Towers is only 32 years old and is in structurally and fundamentally sound condition. When modernized and managed with vigilant resident oversight, Plaintiffs know that Brick Tower can provide decades of quality residential housing for Newark residents.

On Friday September 13, 2002 Defendants Secretary Martinez and HUD intend to “sell” Brick Towers to the Newark Housing Authority (NHA) for $1.00 and further provide the buyer (NHA) with $12,800,000.00 dollars with full knowledge and agreement that the NHA will demolish the two 16 story Martin Luther King Jr., Boulevard buildings currently occupied by the individual plaintiffs and Plaintiff Brick Towers Resident Corporation members.

By contrast, Plaintiff Brick Towers Resident Corporation (hereinafter BTRC) is proposing a privately financed modernization and preservation plan that calls for no HUD grant thereby saving U.S. Taxpayers $12,800,000.00 while avoiding the demolition of the 324 apartments.

The BTRC modernization and preservation plan will also prevent the suffering that the more than 225 low-income African American families, a great many of whom are elderly, disabled and on fixed incomes, currently living at Brick Towers will suffer if Brick Towers is demolished. The severe emotional, mental and physical hardship and the trauma of permanent displacement from their long-term homes and personal and social dislocation, the prospect of homelessness can be avoided.

Plaintiffs contend that HUD’s decision to sell Brick Towers to the NHA with knowledge that the NHA plans to demolish the property violates Congress’ clear mandate as set forth in the Multifamily Housing Property Disposition Reform Act of 1994 and HUD regulations promulgated there under. Specifically, Congress’ preference is that in the least costly fashion, resident sponsored purchase and preservation proposals be facilitated and that Defendant Secretary Martinez avoid involuntary displacement and demolition of affordable housing while maintaining housing opportunities for low-income families. HUD’s adoption of the NHA’s demolition plan is arbitrary and capricious because it misapplies and ignores HUD’s own regulations as well as written comments and objections brought to HUD’s attention. Finally, HUD’s plan has a racially discriminatory impact on the African American residents of the property.

Plaintiffs seek declaratory and injunctive relief declaring HUD’s determination not to preserve the property and its planned sale to the NHA for demolition to be invalid under the Multifamily Housing Property Disposition Reform Act of 1994 (hereinafter: the Disposition Act), 12 U.S.C. § 1701z-11, HUD regulations promulgated there under at 24 C.F.R. Part 290, and the Administrative Procedure Act (hereinafter: the APA) providing for judicial review of agency action. Plaintiffs further seek relief pursuant to the Fair Housing Act, 45 U.S.C. § 3501 et seq., based on the impact that HUD’s actions will have in reducing Plaintiffs’ housing opportunities. Finally, Plaintiffs assert that HUD’s action violated the Due Process Clause of the Fifth Amendment to the United States Constitution as well as the Plaintiffs’ statutory right to due process under 12 U.S.C. § 1715z-1b and 12 U.S.C. § 1701z-11(c)(2)(D).

II. JURISDICTION

Jurisdiction over the Plaintiffs’ claims is conferred on this court by 28 U.S.C. § 1331 (federal question jurisdiction) in that this action arises under the Constitution and laws of the United States; and the Administrative Procedure Act, 5 U.S.C. § 701 et seq. (authorizing review of agency actions).

Plaintiffs seek declaratory and injunctive relief against the Defendant pursuant to 28 U.S.C. §§ 2201 and 2202.

Venue is proper in this district pursuant to 28 U.S.C. § 1391(b) because the Plaintiffs’ claims arose in this district.

III. PARTIES

A. Plaintiffs

Plaintiff Constance Forrest has lived at Brick Towers since March 1970. She lives at 685 Martin Luther King, Jr., Blvd., Apt. 4G. Ms Forrest a retired, 62 year old African-American woman whose main source of income is disability benefits as a result of kidney failure. Brick Towers is walking distance from the hospital where she is treated for her kidney disease and the church where she worships.

Plaintiff Vera Gillus too has lived at Brick Towers since April 1970, over 32 years. She lives at 685 Martin Luther King, Jr., Blvd., Apt. 3C. Ms. Gillus is 70 year old and a lifelong resident of Newark. She raised her two children in Brick Towers and now lives by herself. Ms. Gillus lives on a fixed income of Social Security Retirement benefits and pension. She suffers from severe arthritis.

Jean Wright resides at 685 Martin Luther King, Jr., Blvd., Apt. 6K. She is 54 years old, was born in Newark and has lived in Newark all her life. She to has lived in Brick Towers since April 1970 and raised her 3 children there. Ms. is employed the Newark Public Schools. Her 94 year old father also resides at Brick Towers. He is hearing impaired and does not wish to live in a senior complex.

Margaret Peart reside at 715 Martin Luther King, Jr., Blvd., Apt. 11D. She is 60 years old and was born in Newark, New Jersey. She has lived in Newark the past 30 years and moved into Brick Towers in July 1982. She lives with her daughter and grandchild. Ms. Peart is permanently disabled as a result of high blood pressure and chronic back and leg problems attribute to an on the job injury. Her sole source of income is Supplemental Security Income (SSI) benefits.

Robert Rodgers lives in 715 Martin Luther King, Jr., Blvd., Apt. 7D. He is 65 years old and has lived in Newark all of his life. Mr. Rodgers moved into Brick Towers in 1970. He raised his four children in Brick Towers and presently lives with his wife. Mr. Rodgers and his wife live on a fixed Social Security Disability income. He is permanently disabled, suffering from impaired vision, diabetes, high blood pressure and is dependent on a cane for mobility.

Cynthia Perkins lives at 685 Martin Luther King, Jr., Blvd., Apt.10K. She is 54 years old and has lived in Newark for the past 35 years. She moved into Brick Towers in March 1970. She raised her two children there and now lives alone. Ms. Perkins sole source of income is Work First New Jersey benefits of $140.00 per month. She is disabled with Osteoarthritis which places limits on her mobility.

Evelyn Bowman lives at 685 Martin Luther King, Jr., Blvd., Apt. 4A. She is 38 year old and was born in New York. She moved into Brick towers in July 1993. She lives there with her three children. She is also on a fixed income, receiving Public Assistance benefits through Work First New Jersey Benefits of $427.00 per month.

The Brick Towers Resident Corporation (BTRC) is a non-profit resident corporation incorporated under New Jersey law in November 2000. BTRC was established by the organized residents of Brick Towers (the Brick Towers Tenants League) specifically to facilitate resident participation in a joint venture to finance, purchase, modernize, manage and operate Brick Towers as affordable housing for current Brick Towers residents and available for occupancy for Newark’s low income families. BTRC’s Board President is Virginia Jones, a lifelong Newark resident employed at the Essex County Prosecutor’s Office and a 30 year resident of Brick Towers. Charlene Jackson, currently employed by Newark Pre School has lived at Brick Towers for 17 years. Ms. Jackson is presently Vice-President of the BTRC. William Henry, recently retired from his job with the City of Newark Health Department and has served as BTRC Secretary.

B. Defendants

Defendant United States Department of Housing and Urban Development (HUD) is the owner of Brick Towers, is responsible for the operation of the property and is responsible for the disposition of the property.

Defendant HUD Secretary Mel Martinez is responsible for oversight and administration of all federal housing programs for eligible low-income residents of the United States, including the disposition of HUD owned property such as Brick Towers. Defendant Martinez is sued in his official capacity.

IV. STATUTORY AND REGULATORY FRAMEWORK

The Multifamily Housing Property Disposition Reform Act of 1994, 12 U.S.C. § 1701z-11, and regulations promulgated pursuant thereto, 24 C.F.R. Part 290, sets forth the rights of residents in multifamily housing when HUD becomes the owner and is required to undertake a disposition process as set forth therein. Moreover, disposition actions must be consistent with the National Housing Act, 12 U.S.C. § 1701 et seq., which has as its purpose providing assistance to private industry in providing housing for low and moderate income families and displaced families. 12 U.S.C. § 1715l(a). Furthermore, 12 U.S.C. § 1715z-1b guarantees tenants a right to meaningful prior notice of HUD’s disposition plan, access to relevant information, the right to comment on any proposed disposition of a multifamily housing project, and the right to have their comments considered by HUD.

The Disposition Act requires the HUD Secretary, consistent with the National Housing Act, to dispose of the property in a manner that addresses Congress’ goals set forth at 12 U.S.C. 1701z-11(a). Specifically, the HUD Secretary is charged with disposing of multifamily housing projects in a manner that will:

(2) …protect the financial interests of the Federal Government; and,

(3) will, in the least costly fashion among reasonable alternatives, address the goals of:

(a) preserving certain housing so that it can remain available to and affordable by low-income persons;

(b) preserving and revitalizing residential neighborhoods;

(c) maintaining existing housing stock in a decent, safe, sanitary condition;

(d) minimizing the involuntary displacement of tenants;

(e) maintaining housing for the purpose of providing rental housing, cooperative housing, and homeownership opportunities for low-income persons;

(f) minimizing the need to demolish multifamily housing projects;

(g) disposing of such projects in a manner consistent with local housing market conditions;

(h) while protecting the financial interests of the federal government.

12 U.S.C. § 1701z-11(a)(1) –(3) (emphasis supplied).

The Disposition Act requires that: “Prior to the sale of a multifamily housing project…the Secretary shall develop an initial disposition plan for the project that specifies the minimum terms and conditions of the Secretary for disposition of the project, the initial sales price that is acceptable to the Secretary, and the assistance that the Secretary plans to make available to a prospective purchaser in accordance with this section.” 12 U.S.C. § 1701z-11(c)(2)(A).

HUD authorized to dispose of a multifamily project consistent with said disposition plan via a negotiated sale, competitive bid or other basis “considering the low-income character of the project and consistent with the goals” set out by Congress in paragraph (a) of the Disposition Act, to an owner capable of satisfying the plan, meeting sound financial standards to ensure the project is maintained in decent safe and sanitary condition, and capable of responding to tenant needs and working cooperatively with tenant organizations. 12 U.S.C. 1701z-1(c)(1)(A)-(E).

As part of developing a Disposition Plan, the Secretary is required to develop procedures:

(i) to obtain appropriate and timely input into disposition plans from officials of the unit of general local government affected, the community in which the project is situated, and the tenants of the project; and

(ii) to facilitate, where feasible and appropriate, the sale of multifamily housing projects to existing tenant organizations with demonstrated capacity, to public or nonprofit entities that represent or are affiliated with existing tenant organizations, or to other public or nonprofit entities. (12 U.S.C. 1701z-11(c)(2)(D) (emphasis supplied).

In this regard, HUD is required to provide pre-disposition notices to tenants as well as community recipients to be identified in consultation with tenants and government officials and such notices shall, “as appropriate, …provide the general terms and conditions concerning the sale, future use, and operation of the project as proposed by HUD; indicate the time by which any offers must be made or any comments must be submitted; and state that the full disposition recommendation and analysis and other supporting information will be available for inspection and copying at the HUD Field Office.” 24 C.F.R. 290.11(c)(3).

The Disposition Act does provide units of local government with a limited (90 day) “right of first refusal” and requires that the Secretary “shall accept a bona fide offer … if it complies with the terms and conditions of the disposition plan for the project…” 12 U.S.C. 1701z-11(i)(2) (emphasis supplied).

If the property is not sold under the right of first refusal to a unit of local government, the HUD Secretary may sell the property through a “negotiated sale” (no bid) process or sell the property through public bid. The “negotiated” (no bid) sale provisions give clear preference to units of local government, resident controlled nonprofits, or other nonprofits wishing to operate the project as non-profit, limited equity cooperative or low-income housing. 24 C.F.R. § 290.13.

HUD’s final disposition plan can only be developed after consideration of comments solicited from tenant and community groups. HUD Guidance , Section 12.

To further Congress’ goals of preserving housing so that it remains available to and affordable by low income families, Congress directed that the Secretary shall provide, as part of the disposition process assistance to ensure the affordability of said units specifically including entering into a project based assistance contract which “shall be sufficient to assist at least all units in the project that … were covered immediately before … acquisition of the project by the Secretary” 12 U.S.C. 1701z-11(e)(1)(B). In addition, the Secretary is authorized to provide discretionary assistance including a reduced sale price, loans and up-front grants for the necessary cost of rehabilitation and other related development costs. 12 U.S.C. 1701z-11(f)(1)-(5).

If the property is sold through a negotiated sale (no bid) process, the assistance HUD may provide is restricted insofar as HUD may only provide an “up front grant” to cover up to 50% of the rehabilitation or $40,000 per unit, which ever is lower, to a unit of local government. 24 C.F.R. 290.27. If the property is not sold via negotiated sale to a unit of local government, HUD may provide the up-front grant as part of a competitive bid sale only. A resident controlled nonprofits or other nonprofit can acquire through a negotiated (no bid) sale, but cannot receive an up-front grant.

The Disposition Act does permit the Secretary, under certain circumstances, to authorize alternative uses for a small percentage[1] of units disposed of by the Secretary to be used “in any manner” if the Secretary and unit of local government determine that such use will “further fair housing, community development or neighborhood revitalization goals.” The HUD Secretary may only elect an “alternative use” that does not preserve the property if the Secretary determines that “sufficient habitable, affordable rental housing is available in the market area in which the project is located to ensure use of …[section 8 voucher] assistance.” 12 U.S.C. § 1701z-11(f)(6)(A), § 1701z-11(f)(6)(B)(ii).

In its Disposition of Multifamily Projects and Sale of HUD-Held Multifamily Mortgages-Guide (hereafter: Disposition Guide), HUD makes clear that the notice to be given to residents, in addition to setting forth the general terms and conditions for disposition, must set forth that alternative uses for the units is possible, but only if HUD has established that “sufficient habitable, affordable rental housing is available in the market area” where the project is located. 61 Fed. Reg. 11691, at 11696, Question 12(b)(9).[2]

HUD’s determination as to whether “sufficient habitable affordable, rental housing is available” requires HUD to use established market analysis to evaluate vacancy rates, annual rental housing production, rising rental costs, and section 8 voucher utilization data. 24 C.F.R. § 290.3 Definitions – Sufficient habitable, affordable, rental housing is available.[3]

HUD regulations further clarify the standards and circumstances when HUD may determine to demolish or otherwise not preserve a project as affordable housing. Specifically, HUD may determine not to preserve a project when:

(a) The costs to HUD of rehabilitation are such that the monthly debt service needed to amortize the costs of rehabilitation, operating expenses and a reasonable return to the purchaser cannot be provided with rents that are, for subsidized or formerly subsidized projects, within 120% of the most recently published Section 8 Fair Market Rents… (24 C.F.R. Part 888, subpart A)…

Brick Towers is a “subsidized project” or “formerly subsidized project” pursuant to 12 U.S.C. 1701z-11(b)(2)(D)(iv) because 247 of the 320 units or more than 50% of the units received Section 8 assistance prior to HUD taking title to the property.

The Disposition Act requires a separate and distinct notice to “preexisting tenants” if the Secretary chooses an “Alternative Use” for the property under section 1701z-11(f)(6) of the Act.

V. STATEMENT OF FACTS

A) Background

On or about May 1987, Meir Hertz, t/a as Brick Towers Associates, L.P. took title to Brick Towers, a two tract development consisting of 324[4] apartments in three buildings. Two of the buildings are 16 story high rises adjacent to each other (685-715 Dr. Martin Luther King, Jr., Blvd.) and containing 300 units. The remaining 24 units are located on a separate lot at 83-87 Milford Avenue in Newark, NJ.

The entire development was subject to a HUD Regulatory Agreement and a Section 8 Housing Assistance Payments Contract covering 247 of the 320 units. Pursuant to said agreements, HUD insured a $7.9 million dollar mortgage and subsidized the rents at the complex. The HAP Contract requires owners to provide safe, decent and sanitary housing and limits the rents paid by residents of covered units to 30% of the household’s adjusted monthly income. 42 U.S.C. 1437f -- Section 8 of the United States Housing Act of 1937, as amended.

On February 9, 2000, HUD took title to Brick Towers via a deed in lieu of foreclosure pursuant to various legal actions brought by or on HUD’s behest against Meir Hertz t/a Brick Towers Associates. HUD pursued said actions against Hertz to enforce the provisions of the Housing Assistance Payments (HAP) Contract between HUD and Brick Towers Associates, which required Hertz to maintain the property in decent, safe and sanitary condition and in exchange for which HUD agreed to subsidize the rents of the section 8 tenants.

Hertz’ conduct also gave rise to a multi-count criminal prosecution for tax fraud based upon his unlawful diversion of building income. Mr. Hertz pleaded guilty to one or more charges and agreed to turn the building over to HUD.

HUD’s filing of the foreclosure action and its taking of title climaxed years of resident complaints to HUD and local code enforcement officials concerning Hertz’ mismanagement of the property since becoming owner, particularly the persistent lack of adequate maintenance, essential heat, hot water, elevator and security services.

Since HUD’s taking title to the property, Brick Towers residents have been actively working to preserve their homes and have garnered broad based support in their efforts to preserve the property.

In addition to desperately wanting to remain in the homes where they raised their families, where they have family and social supports and networks, in an increasingly desirable central location, Plaintiffs are acutely aware that the loss of their homes will plunge them into the midst of the severe shortage of affordable housing affecting Newark specifically and New Jersey as a whole.

HUD’s own study, Rental Housing Assistance—The Worsening Crisis HUD’s report on the nation’s worst case housing needs released in March 2000, cited this shortage of housing and noted that there are only 40 affordable units for every 100 low income families in Newark. In addition, national studies conducted each year place New Jersey in the top three most expensive rental markets in the nation, along with San Francisco and Honolulu.

Since March 2000, immediately after HUD took title to the present, the Newark Municipal Council has passed two (2) Resolutions and two (2) Ordinances citing the severe affordable housing shortage in Newark resulting from the loss of thousands of units of assisted housing and calling for preservation and seeking to prevent the demolition of the property. Less than 30% of the approximately 8,000 public and federally subsidized housing apartments demolished or lost in the previous decade are scheduled to be replaced by units affordable to low or very-low income Newark residents.[5] The Municipal Council resolutions, inter alia, expressly call on HUD not to permit the demolition of Brick Towers and ask that HUD not transfer the property to the NHA for demolition.

Furthermore, the City Council independently hired an attorney to assist it in efforts to ensure that Brick Towers is preserved, and is currently before the New Jersey Superior Court’s Appellate Division challenging the NHA Board of Commissioner’s decision to enter into a Contract of Sale to buy an demolish Brick Towers.

Among those noting the lack of affordable housing and expressing their support for the residents efforts to preserve Brick Towers are Congressman Donald Payne, Senator Jon Corzine, County Executive James Treffinger and Newark Mayor Sharpe James. This in addition to thousands of community supporters who signed a petition opposing demolition of Brick Towers submitted to the Municipal Council in January 2002.

Congressman Donald Payne and Senator Jon Corzine have both specifically requested that HUD’s planned sale to the NHA be halted and that a meaningful review of Plaintiffs’ preservation proposal be undertaken.

B) Chronology of HUD’s Brick Towers Disposition Process

Promptly after taking title to the property HUD issued a letter advising the State of New Jersey, the City of Newark and the Newark Housing Authority (NHA) of their right of first refusal. The February 23, 2000 letter states in part:

We believe the property to be in such a sate of disrepair that it is our intention to relocate all of the residents to alternative housing. We have commissioned a comprehensive repair survey and expect to have the results in approximately 30 days. It is possible that, based on the results of the repair survey, a non-preservation decision could be made… (emphasis supplied).

HUD’s February 23, 2000 letter further stated that subject to authorization and availability, “HUD may make available an Up Front Grant to assist with the demolition of the property if the results of our repair survey support such an action” (emphasis supplied).

On March 7, 2000 the NHA exercised its Right of First Refusal by writing to HUD expressing interest in taking title to the property. According to various HUD correspondences, based upon the NHA’s expression of interest, HUD and the NHA began negotiations for the sale of Brick Towers. (See Exhibit A)

In late March 2000 HUD notified Brick Towers residents that it had taken title to the property and was developing a Disposition Plan. In its letter HUD indicated it was seeking resident and community input and gave the residents 30 days within which to submit written comments to Walter Kreher, a local HUD official. HUD did not disclose any terms or conditions of an initial disposition plan to the residents. (See Exhibit B)

Because plaintiffs were aware of HUD’s ‘belief’ that relocation of the residents was likely, the residents undertook efforts to retain their own engineer and began trying to identify a developer committed to resident involvement and capable of carrying out the modernization of the premises.

On May 1, 2000, the Brick Towers Tenants League (the resident organization antecedent to Plaintiff BTRC) submitted extensive comments to HUD (50 pp.). The residents comments were addressed to the New Jersey HUD office Director (Dianne Johnson) and were also sent to the designated party in HUD’s March 2000 notice (Walter Kreher, also in HUD’s NJ office), as well as to then HUD Secretary Cuomo and HUD Assistant Secretary Apgar.

In their May 2000 comments, the residents focused on three (3) areas. First, HUD’s statutory requirements to maintain and preserve affordable housing, particularly in the context of a severe affordable housing shortage affecting the Newark area – a shortage HUD itself has amply cited in its own studies. Second, the residents presented a financial pro forma clearly establishing that 120% of the Section 8 Fair Market Rents then in effect (4/00) would support an $11,473,256.00 rehabilitation loan, meet operating expenses and provide a 10% return on a potential $2.9 million equity investment (see Exhibit C).[6] Third, the residents raised funds and retained an engineer with a specialization in HUD properties to evaluate the condition of the building. The engineering report established a total rehabilitation cost of just over $5 million dollars and projected that the work could be staggered so that the entire amount was not required immediately.[7]

Notwithstanding the residents comments, and without giving notice of any disposition plan and disclosing the results of HUD’s comprehensive repair survey, HUD and the NHA undertook negotiations over an NHA’s August 2000 redevelopment proposal calling for the demolition of the properties and one-for-one replacement on several sites throughout Newark. The NHA proposal would have replaced only 1/3 of the units as affordable for very low and extremely low income families.[8]

Brick Towers residents actively opposed the plan, appearing before the NHA Board of Commissioners and submitting comments to both the NHA and HUD.

HUD did not agree to the NHA proposal, finding it unsatisfactory, and requested that the NHA revise the proposal and respond to resident objections. HUD specifically called into question the NHA’s proposed budgets and refused to increase its contribution beyond the regulatorily mandate limits (the lower of $40,000 per unit or 50% of the rehabilitation/replacement cost, whichever is lower).

On February 23, 2001 the NHA notified HUD in writing that it was withdrawing its expression of interest in acquiring the property. (See Exhibit D)

On March 12, 2001 and on April 16, 2001, William Melvin, Director of HUD’s Multifamily Disposition Center in Atlanta acknowledged in writing that the NHA has “declined our Right of First Refusal offer to purchase the property with an Up-Front Grant or Loan.” (See Exhibits E and F)

In effect, HUD reiterated that since February 23, 2001 the disposition of the property would no longer take place pursuant to the “Right of First Refusal” provisions of the Disposition Act since the NHA had declined to so proceed. In addition, the 90 day period had expired.

After the NHA withdrew the Right of First Refusal, HUD did not thereafter develop and publish a disposition plan as required by the Act and regulations and inviting proposals from the residents or other community members. 24 C.F.R. 290.11(d); and HUD Guidance pp. 11695.[9]

Notwithstanding the lack of a disposition plan, in late May 2001 the NHA contacted HUD and once again expressed interest in reopening negotiations on the acquisition of Brick Towers.

In late December 2001 and early January 2002 William Melvin, Director of HUD’s Atlanta Multifamily Disposition Center notified Brick Towers residents that pursuant to the NHA’s exercised of its statutory right of first refusal on October 10, 2001 HUD had entered into a Contract to sell Brick Towers and the NHA was required to close within 90 days. The notice further advised residents that a disposition plan was available for review, that title would be transferred in January 2002 and attaching HUD’s recommendation. In its letter, HUD made clear that the NHA intended to demolish the two existing towers (Exhibit G).

Prior to executing the contract of sale, HUD had still not given notice of disposition plan setting forth and requesting comments and response to a final disposition plan as required by 24 C.F.R. 290.11(d). HUD’s Disposition was not published until January 2002. (See Exhibit H)

HUD’s disposition plan identified the total cost of rehabilitation as $8.3 million dollars. HUD further projected a $2.7 million dollar annual rent roll, setting individual unit rents far below the 120% of FMR standard required under 24 C.F.R. 290.25.

In its Disposition Plan HUD did not include or even reference any market area study establishing that sufficient habitable, affordable rental housing is available in the market area in which the project is located “to ensure use of …[section 8 voucher] assistance” by very low-income families and other low-income families using tenant-based assistance. 12 U.S.C. § 1701z-11(f)(6)(A), § 1701z-11(f)(6)(B)(ii); 24 C.F.R. 290.3.

On January 29, 2002 BTRC President Virginia Jones on behalf of the residents, submitted comments to HUD’s disposition plan. Specifically, the resident’s comments noted that HUD had ignored the requirements of 24 C.F.R. 290.25 – to wit, HUD failed to apply the 120% of FMR standard in making a determination not to preserve the property. If the 120% of FMR standard required by 24 C.F.R. 290.25 were applied the annual rent roll would more than $1 million dollars more each year and would meet operating expenses, provide a 10% return on a potential $2.9 million equity investment and would support a rehabilitation loan of more than $11.5 million – an amount in excess of that cost of rehabilitation estimated by HUD. (See Exhibit C, Financial Pro Forma, Supra).

Moreover, HUD’s disposition plan not only failed to utilize the correct standard, which had been extensively detailed in the residents original May 2000 comments, HUD in fact failed to respond a single one of the extensive comments submitted in May 2000 and did not even acknowledge receipt of the residents comments.[10]

In its comments on HUD’s December 2001 disposition plan the resident association agued that HUD effectively disposed of the property to the NHA without having developed a disposition plan and considered resident and community comments as required by the Disposition Act.

By way of letter dated February 21, 2002, HUD indicated that the residents May 2000 comments did not have any affect its decision to sell the property to the NHA knowing the NHA’s intent to demolish the buildings. (See Exhibit I) Thereafter, HUD took the position that it could not entertain any proposal because it had an existing contract of sale with the NHA.

HUD granted a series of contract extensions, predicated on a variety of factors including: the Newark Municipal Council’s February 2002 passage of an Ordinance establishing a six (6) month Moratorium on demolition or any steps to demolish or relocate Brick Towers residents; the subsequent extension of the Moratorium Ordinance for 18 months beginning in June 2002; the replacement of the NHA Executive Director (effective July 1, 2002); and HUD’s Office of General Counsel’s directive that the up-front grant funds for replacement of the 300 Martin Luther King, Jr. units could not be spent on sites outside the Brick Towers boundaries.

Throughout the disposition process, HUD has on numerous occasions, including its December 2001 notice announcing the disposition plan (see, supra, Exhibit G) stated that neither HUD nor the contract of sale requires the NHA to demolish the property but that it is solely up to the NHA. In effect, HUD was acknowledging that I never developed a disposition plan.

C) RESIDENT/BTRC PRESERVATION PROPOSAL

Promptly upon HUD taking title in February 2000, then existing resident organization, the Brick Towers Tenants League began to identify and to undertake discussions and negotiations with several developers with a proven track record of commitment to working with residents to develop and maintain quality affordable housing.

In November of 2000 the League established the Brick Towers Resident Corporation, a nonprofit corporation designed to better position and facilitate Brick Towers residents’ direct participation in the acquisition, financing, modernization and long-term preservation of Brick Towers as affordable housing.

Also in November 2001 The Brick Towers Resident Corporation reached an agreement in principle with Community Developers, Inc., a New Rochelle, New York based developer with a proven track record in developing and operating assisted housing.

Beginning in December 2001, BTRC President Virginia Jones, and Getz Obstfeld, Community Developers, Inc., President began contacting HUD officials in Washington and Atlanta and notified them of the agreement and introduced the developer, the development team s well as the developer’s financial capacity.

In January 2002, BTRC and Community Developers, Inc created the Brick Towers Community Developers Joint Venture by entering into a Memorandum of Understanding.

In May 2002 Community Developers, Inc. secured a preliminary conditional commitment for a $5 million dollar construction loan and, soon thereafter, received a strong expression of interest from Newark’s Prudential Foundation to provide permanent “take out” financing. The Prudential Foundation also expressed an interest in financing the entire modernization proposal ($10 million of tax exempt bond financing with Low Income Housing Tax Credits) – See Exhibits J and K. Based on Prudential’ willingness to provide permanent take out financing of $10 Million, Plaintiff’s total rehabilitation costs, JPMorgan Chase increased its construction loan commitment to $ 6 Million. (See Exhibit L)

To date, HUD has refused to meet with or entertain the residents proposal in any way claiming that the contract of sale was pursuant to NHA’s statutory Right of First Refusal.

VI. FIRST CAUSE OF ACTION

Violation Of National Housing Act, 12 U.S.C. § 1701, Et Seq., & the Multifamily

Housing Property Disposition Reform Act Of 1994, 12 U.S.C. § 1701z-11, Et Seq.

Plaintiffs reallege and incorporate by reference the allegations in Paragraphs 1 through 81, inclusive, of this Complaint.

HUD violated the Plaintiffs’ statutory rights under the National Housing Act, 12 U.S.C. § 1701, et seq., the Multifamily Housing Property Disposition Reform Act of 1994, 12 U.S.C. § 1701z-11, and regulations promulgated hereunder at 24 C.F.R. Part 290, by making a determination not to preserve and to authorize the demolition of Brick Towers in violation of the Act and federal regulations. Specifically, HUD:

(a) Determined that the project was not economically feasible to preserve by applying the incorrect projected rent roll standard in violation of 24 C.F.R. 290.25. By so doing HUD underestimated the income projection to be underestimated by more than $1 million annually.

(b) Never published a disposition plan before entering into a contract of sale with the NHA.

(c) In developing the required disposition plan, HUD ignored the residents May 2000 comments setting forth the statutory mandate that affordable housing be preserved, involuntary displacement and demolition be avoided, and setting forth the correct projected rent standard; and in fact acknowledged not responding to the residents May 2000 comments.

d) Insofar as HUD determined not to preserve the project, HUD was required

to HUD failed to conduct a market area study to establish that sufficient habitable, affordable rental housing is available in the market area in which the project is located “to ensure use of …[section 8 voucher] assistance” by very low-income families and other low-income families using tenant-based assistance. 12 U.S.C. § 1701z-11(f)(6)(A), § 1701z-11(f)(6)(B)(ii); 24 C.F.R. 290.3.

In fact, a contemporaneous appraisal commissioned pursuant to HUD’s Mark-to-Market Program analyzed a representative cross section of comparable properties in the market area found that “there is a shortage of quality rental housing in Newark.” The occupancy rate for the properties ranged between 95-100%. The appraisal further found that properties with a consistent vacancy rate in excess of 5% were “poorly managed or are in poor condition.”

As a direct and proximate result of HUD’s violations of law, its decision not to preserve and to authorize and fund the demolition of Brick Towers, Plaintiffs will suffer irreparable harm because HUD’s transfer of the property will result in the demolition of their homes and their involuntary displacement. Plaintiffs will also be denied the opportunity to preserve their homes by acquiring the property and modernizing it.

VII. SECOND CAUSE OF ACTION

Violation of the Administrative Procedure Act, 5 U.S.C. § 701 et seq.

Plaintiffs reallege and incorporate by reference the allegations in Paragraphs 1 through 85, inclusive, of this Complaint.

The Administrative Procedure Act, 5 U.S.C. § 701 et seq., provides a private right of action to individuals aggrieved by HUD actions or omissions that inconsistent with applicable statutory and regulatory provisions.

HUD’s determination that Brick Towers should not be preserved and authorizing and paying for its demolition is the result of an abuse of discretion and is contrary to the Disposition Act, 12 U.S.C. § 1701z-11 and regulations promulgated there under.

As a direct and proximate result of HUD’s violations of law, Plaintiffs will suffer irreparable harm because HUD’s transfer of the property will result in the demolition of their homes and their involuntary displacement. Plaintiffs will also be denied the opportunity to preserve their homes by acquiring the property and modernizing it.

VIII. THIRD CAUSE OF ACTION

Violation of Fair Housing Act

Plaintiffs reallege and incorporate by reference the allegations in Paragraphs 1 through 89, inclusive, of this Complaint.

HUD violated Title VIII of the Civil Rights Act of 1968, 42 U.S.C. § 3601 et seq., by discriminating against the Plaintiffs on account of their race or disability.

HUD decision not to preserve and to authorize and fund the demolition of Brick Towers reduces the housing opportunities for Brick Towers residents in that they will lose the housing of their choice and be forced to search for alternate housing in an extremely tight housing market which disadvantages section 8 voucher holders.

HUD violated Title VIII of the Civil Rights Act of 1968, 42 U.S.C. § 3601 et seq., by diminishing housing opportunities for Plaintiffs, all African American residents of Brick Towers.

As a direct and proximate result of HUD’s violations of law, Plaintiffs will suffer irreparable harm because HUD’s transfer of the property will result in the demolition of their homes and their involuntary displacement. Plaintiffs will also be denied the opportunity to preserve their homes by acquiring the property and modernizing it.

VIII. FOURTH CAUSE OF ACTION

Denial of Procedural Due Process

Plaintiffs re-allege and incorporate by reference the allegations in Paragraphs 1 through 94, inclusive, of this Complaint.

HUD’s decision not to preserve and to authorize and fund the demolition of Brick towers to terminate the Plaintiffs’ project-based Section 8 assistance and leases without developing a disposition plan, failing to consider all relevant factors under the statute including promoting fair housing, and not providing the Plaintiffs meaningful involvement in the disposition plan process as required by law violated the Due Process Clause of the Fifth Amendment to the United States Constitution as well as the Plaintiffs’ statutory right to due process under 12 U.S.C. § 1715z-1b and 12 U.S.C. § 1701z-11(c)(2)(D).

As a direct and proximate result of HUD’s violations of law, Plaintiffs will suffer irreparable harm because HUD’s transfer of the property will result in the demolition of their homes and their involuntary displacement. Plaintiffs will also be denied the opportunity to preserve their homes by acquiring the property and modernizing it.

WHEREFORE, the Plaintiffs respectfully request that the Court:

1) Declare HUD’s decision not to preserve Brick Towers violated the Multifamily Housing Property Disposition Reform Act of 1994, 12 U.S.C. § 1701z-11, regulations promulgated hereunder at 24 C.F.R. Part 290, the National Housing Act, 12 U.S.C. § 1701, et seq., and 12 U.S.C. § 1715z-1b, and denied Plaintiffs due process under the Due Process Clause of the Fifth Amendment to the United States Constitution and is invalid;

2) Declare that HUD abused its discretion under the Multifamily Housing Property Disposition Reform Act of 1994, 12 U.S.C. § 1701z-11, pursuant to Administrative Procedure Act, 5 U.S.C. § 706(2) and its decision to not preserve Brick Towers is invalid;

3) Declare that HUD’s decision not to preserve and to authorize and fund the demolition of Brick Towers violates the Fair Housing Act;

4) Issue a temporary restraining order, preliminary injunction, and permanent injunction enjoining HUD from selling the property to the Newark Housing Authority;

5) Grant Plaintiffs such other and further relief as the nature of their causes may require.

ESSEX-NEWARK LEGAL SERVICES

Attorneys for Plaintiffs

BY:____________________________ BY:____________________________

César E. Torres, Esq. Genia Philip Sookram, Esq.

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[1] “…not more than … 5 percent of the total number of units in multifamily housing projects that are disposed of by the Secretary during any fiscal year…” 12 U.S.C. 1701z-11(f)(6)(A)(ii).

[2] Congress expressly limited the HUD Secretary’s authority to provide assistance in the form of “tenant-based” assistance (or vouchers) to residents of multifamily projects to situations where the Secretary has determined that there is “available in the area an adequate supply of habitable, affordable housing for very low-income families and other low-income families using tenant based assistance.” 12 U.S.C. 1701z-11(e)(2)(A). The terms “low-income” and “very low income” are defined by Congress at 42 U.S.C. 1437a(b) as families with incomes below 80% and below 50% of the area’s median income, respectively.

[3] The definition requires HUD to examine the vacancy rate, the relationship between housing production relative to net losses of available inventory, excessive rent increases, as well as examination of difficulties encountered by holders of Section 8 vouchers, including PHA data pertaining to leasing difficulties. 24 C.F.R. 290.3 Definitions.

[4] Physically there are 324 units, but all discussion willuse320 as the based on HUD’s maximum Up-Front grant figure of $12.8 Million (40,000 x 320)

[5] In the last decade, approximately 8,000 subsidized apartments in Newark have been demolished, and/or have been stripped of their federal subsidies. Stella Wright 1179; Hill Manor 424; Scudder Homes 1428; Columbus Homes 1506; Kretchmer and Hayes Homes 730; Walsh Homes 630; High Park Gardens 64; Amity Village I & II 172; Clearview Better Homes I & II 60; all of these units were public housing units or federally subsidized apartments affordable to extremely low-income or very low-income Newark residents.

[6] The financial pro forma was prepared by Justin Peyser, New Jersey Director for the Community Preservation Corporation, a non-profit lender specializing in financing of multi-family housing rehabilitation. The Pro Forma included various financial scenarios.

[7] The cost of rehabilitation was roughly $24.00 per square foot vs. $135 per square foot for new construction.

[8] See ff. 2. supra. Extremely low-income households are defined as those with income below 30% of the area median income.

[9] At this time, Plaintiffs negotiation with a developer involved discussions with the NHA to serve as a past through for the rehabilitation grant, a process sanctioned by HUD in Red Bluff, California.

[10] In addition to having a signed acknowledgment of receipt by Walter Kreher the party designated to receive comments, the May 2000 comments were also served on then-HUD Secretary Cuomo, Assistant Scy. Apgar and NJ State director Dianne Johnson.

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