Brooklyn Rent-Stabilized Building Foreclosures: How Landlord Financial Distress Affects Tenant Rights and Housing Security in 2024

Brooklyn’s Rent-Stabilized Buildings Face Foreclosure Crisis: What Tenants Need to Know About Their Rights in 2024

Brooklyn’s affordable housing landscape is experiencing unprecedented turmoil as rent-stabilized buildings face a 25.1% distress rate in 2024, with landlords struggling under rising costs and limited rent growth. This crisis is putting thousands of tenants at risk of displacement, making it crucial for residents to understand their rights when their buildings enter foreclosure proceedings.

The Growing Foreclosure Crisis

The foreclosure wave hitting Brooklyn’s rent-stabilized buildings stems from multiple factors. Rising insurance and operating costs, combined with restrictive rent regulations under the Housing Stability and Tenant Protection Act, have left many property owners in financial distress, with insurance premiums, taxes, and repair costs more than doubling. Recent cases include Community Stabilization Partners filing six foreclosure lawsuits targeting eight properties, including buildings in Brooklyn, alleging defaults on $76 million worth of loans.

Property values for rent-stabilized buildings have plummeted by 30% to 50%, with sales declining dramatically from $4.8 billion and over 22,500 units in 2015 to just $1.1 billion and approximately 6,500 units in 2023. This financial distress is creating a perfect storm that threatens Brooklyn’s affordable housing stock.

Tenant Rights During Foreclosure

Despite the alarming foreclosure trends, tenants in rent-stabilized buildings have significant protections. New York law explicitly states that tenant rights are unaffected by a building entering foreclosure status, with rent-stabilized and rent-controlled tenants continuing to receive the same level of protection even though the building is subject to foreclosure.

Key tenant protections include:

  • Lease Renewal Rights: Rent-stabilized tenants have the right to a renewal lease containing the same terms as their original lease
  • Rent Increase Limits: Rent can only be increased by percentages decided annually by the Rent Guidelines Board, with current guidelines allowing increases up to specific percentages for leases starting October 1, 2025, through September 30, 2026
  • Foreclosure Notice Requirements: Banks must notify all tenants that the property is subject to foreclosure action before any post-foreclosure eviction action may be brought in court
  • Continued Occupancy: After foreclosure sale completion, tenants in rent-controlled and rent-stabilized units maintain the same rights and obligations as they did under agreements with their previous landlords, with new owners required to comply with all applicable rent control and rent stabilization laws

Post-Foreclosure Protections

Following a foreclosure, the only change for rent-stabilized tenants is the party to whom they submit rental payments. The sole exception is that a new owner can evict a tenant from only one unit if the owner intends to occupy that unit as their primary residence, requiring at least 90 days’ notice prior to eviction.

Federal protections under the Protecting Tenants at Foreclosure Act of 2009 require new owners to give tenants at least 90 days’ notice to quit, providing adequate time to locate new housing. Tenants with federal Section 8 housing choice voucher assistance receive additional protection, allowing them to keep their Section 8 lease with new owners required to assume the housing assistance payment contract.

What Tenants Should Do

When facing a foreclosure situation, tenants should:

  • Continue Paying Rent: Tenants remain subject to lease requirements, including rent payment to the landlord, though a receiver may be appointed to manage rental payments during proceedings
  • Document Everything: Keep records of all notices, payments, and communications
  • Know Your Rights: Understand your rent-stabilized status by contacting NYS Homes and Community Renewal (HCR), which regulates rent-stabilized apartments and provides rental history information
  • Seek Legal Help: Tenants feeling wrongly evicted should consult an attorney, with free legal assistance available through the New York State Bar Association’s Lawyer Referral Program at (800) 342-3661 or local Legal Aid offices

Professional Legal Assistance

Given the complexity of foreclosure proceedings and tenant rights, seeking professional legal counsel is essential. Experienced attorneys can help navigate the intricate web of federal, state, and local laws protecting tenants during foreclosure proceedings. A qualified Foreclosure Attorney Brooklyn can provide crucial guidance on tenant rights, foreclosure defense strategies, and ensure proper legal procedures are followed throughout the process.

Looking Ahead

Experts predict foreclosures will continue to increase as distressed multifamily loans reach maturity, with even Community Stabilization Partners beginning foreclosures, though buyers acquiring buildings for pennies on the dollar may still struggle to make the numbers work. Unless lawmakers revisit the Housing Stability and Tenant Protection Act, stakeholders warn of a growing affordability paradox and the slow-motion unraveling of a critical sector in New York’s housing market.

For Brooklyn tenants in rent-stabilized buildings, understanding these rights and protections is more critical than ever. While the foreclosure crisis threatens the borough’s affordable housing stock, strong tenant protections remain in place to help residents maintain housing security during these challenging times.