Tenants Face Tough Fight Against MCI Fraud

By David Brand

When Hilda Valentin’s landlord died in 2016, her six-unit apartment building was in the process of getting a new boiler. Valentin had lived in a rent-stabilized apartment there for 27 years.

After some back and forth between the city, the boiler company and the landlord’s estate, the estate agreed to pay the cost of the boiler and life went on as usual for the tenants.

 District 34 Councilmember Antonio Reynoso speaking to residents fighting for tenants rights. Photo courtesy of Raquel Namuche.

District 34 Councilmember Antonio Reynoso speaking to residents fighting for tenants rights. Photo courtesy of Raquel Namuche.

That is, until February, when the LLC that bought the building transferred ownership to the managing agent, who promptly jacked up the rent. He had applied for the rent increase based on a Major Capital Improvement (MCI) — the $13,000 boiler — through the Division of Homes and Community Renewal.

He never paid for the boiler though, Valentin said.

“[The dead landlord’s] estate paid for the new boiler and the new landlord was able to get the MCI,” Valentin said. “And it’s not for a period of time. It’s for life on top of the increase every year or two years for rent stabilization.”

Valentin and the building’s tenant association challenged the MCI but failed.

“So we’re paying for the boiler when we didn’t even ask for it [and] he didn’t even pay for it,” Valentin said. “I feel the MCI should be eliminated or at least investigated before it’s approved.”

Her experience reflects a tricky and all-too-common scenario for tenants whose building owners can exploit an administrative quirk to jack up the cost of living in rent-regulated apartments.

When building owners make certain necessary improvements or enhancements — an MCI — to a building with rent-stabilized apartments, they can apply to the New York State Division of Housing and Community Renewal (DHCR) to raise rents based on those costs.

The problem, tenants advocates say, is that renters ultimately bear the cost of projects they have no say in — and which can be easily falsified or left incomplete.

Once rent rises above $2,700 per month, the unit no longer qualifies as rent stabilized and landlords can jack up the rent as they please. Thus, landlords have a powerful incentive to pursue major capital improvements, even if the MCIs pose a significant upfront cost.

Landlords also have powerful incentive to partner with contractors to fudge receipts so that they reflect phony costs, which they pass on to tenants. There is often little oversight and that type of fraud can be hard to prove, according to attorney Anne Ascher, the Housing Unit director at Queens Legal Services.

“Generally, to challenge an MCI, you need a smoking gun,” Ascher said. “You have to challenge the work itself and we can’t do that by saying, ‘It doesn’t look good.’ You need and engineer or architect to assess it and challenge it that makes it basically impossible.”

Tenants who do choose to appeal MCIs must do so with the DHCR, which approved the MCI in the first place. If tenants don’t like the appeal decision, they can challenge in State Supreme Court, Civil Term by filing an Article 78 motion. Article 78 motions are heard on Monday afternoons in Courtroom 26, where Justice Thomas D. Raffaele presides.

MCI and POTUS

Though they are familiar to tenant advocates throughout Queens, fraudulent MCIs garnered nationwide attention earlier this month. A report by The New York Times that Queens’ most famous landlord used phony MCIs to justify rent increase in rent-stabilized buildings.

In 1992, Donald Trump and his father Fred Trump formed All County Building Supply & Maintenance, to inflate the cost of improvements or building supplies. Through All County, the Trumps purchased items at a discounted or market rate and sold them to themselves at an exorbitant mark up. The maneuver enabled them to claim expenses they did not actually incur, the Times reported.

In one example, Fred Trump negotiated a 10 percent discount on 60 boilers purchased from an industrial boiler company, A. L. Eastmond & Sons. All County paid the boiler company the discounted price negotiated by Fred Trump, but its invoices issued to Fred Trump were padded by 20 to 25 percent, adding hundreds of thousands of dollars to the cost of the boilers, according to the Times’ findings.

After the formation of All County, the Trumps claimed more than $30 million in capital improvements — including the inflated boiler costs — to justify rent increases for thousands of apartments in the rent-stabilized buildings they owned throughout the city the Times reported.

The tactics and scale may sounds extreme, but landlords routinely work with contractors or other tradespeople to file false MCI claims, said State Sen. Liz Krueger in 2012 senate testimony.

State Sen. Michael Gianaris agrees. Gianaris introduced the Senate version of a bill to end cost increases based on MCIs. Queens Assemblymember Bill Barnwell introduced the Assembly version.

"Landlords have been abusing the MCI system since it was created and it's no surprise the Trump Empire was at the center of the storm,” Gianaris told the Eagle.

On the ground in Ridgewood

During his career as a tenant organizer, CUNY Law Prof. John Whitlow said he has seen abusive practices, such as MCI fraud, occur most frequently in gentrifying neighborhoods.

“You see in the same building, tenants who pay $900 a month and are rent stabilized and their neighbors pay $3000 because the landlords have successfully evicted or gotten the [rent-stabilized tenants] to move out,” Whitlow said. “Tenants have to organize, go to DHCR and ask them to keep rent from increasing because of lack of services.”

Raquel Namuche, an organizer for Ridgewood Tenant Union, also said organization is key for tenants to stand any chance at challenging an MCI.

“I can say with confidence that landlords are getting these applications approved because tenants aren't organized, which is why groups like mine are trying to bring tenants together to inform them of the various loopholes landlords utilize to increase rents,” Namuche said.

She said she has noticed more landlords applying for MCIs as opposed to four years ago when landlords tried to force tenants out of the buildings before submitting substantial rehabilitation applications.

Despite years of advocacy for tenant protections within DHCR, Namuche said the agency has yet to enact meaningful reforms.

“They are not as proactive as they need to be in this era of crazy landlord fraud and harassment,” Namuche said.