The Mitchell-Lama Buyout Process The Challenges of Going Private

Back in 1955, when the flight to the suburbs was going full blast and many city neighborhoods were deteriorating from lack of money and municipal attention, the Mitchell-Lama bill, named after State Sen. McNeil Mitchell and New York Assemblyman Alfred Lama, was signed into law.

The purpose of the program was to encourage the building of moderate-income housing, to keep more middle-class families within the state's cities, and to help stabilize city neighborhoods. And the program worked -- scores of Mitchell-Lama buildings (some 270 developments with nearly 140,000 apartments) were constructed throughout the 1950s, '60s and '70s, and provided housing for lower- and middle-income families. The projects developed under this program received real estate tax breaks and low interest loans and mortgages in return for keeping rents and purchase and resale prices far below market value for a period of time. After this period the co-op corporation could opt out of the program. Some say one of the real reasons for Mitchell-Lama in the first place was so that these buildings could stabilize borderline areas--clearing the way for the private real estate market to step in.

This period has changed several times over the years; it's now 20 years in most cases. Upon leaving the program, all subsidized loans and mortgages needed to be paid off and or refinanced conventionally. All real estate tax abatements and exemptions related to the initial finances, would no longer apply and real estate taxes would increase to that paid by similar cooperatives. A Mitchell-Lama technically pays what's called a "shelter rent" payment-in-lieu of taxes, which is derived through a formula which accounts for 10 percent of the annual rent roll of the shareholders plus the cost of utilities.

Many of the neighborhoods where Mitchell-Lama buildings were built have seen a dramatic increase in real estate prices, especially in neighborhoods that have become "upscale" making "buying out" more attractive than ever to many. If and when a Mitchell-Lama or a similar co-op does go private, those who own apartments can potentially sell them at market rates. If you paid $12,000 for your apartment, and are now seeing apartments all around you selling for $500,000 or $1 million or more, that's a powerful incentive for many people.

"I'm about to go into contract for a three-bedroom apartment for $1.275 million&--that's phenomenal," said Madeline Williamson, a broker for Prudential Douglas Elliman, handling apartments at 75 Henry Street, a now-privatized Article 5 co-op in Brooklyn Heights. "Studios are now ranging from $300,000 to $350,000."


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  • This is a great article. Please clarify if the coop owner will be subject to transfer tax when the bldg goes private (i am not referring to the flip tax or when the unit was ultimately sold to an outside party). Thanks
  • Can a tenant transfer from one Mitchell-Lama to a next Mitchell-Lama building? I have a one bedroom and don't have the down payment for a 2 br. that i really need.
  • if ai pay 22000 for2 bed the ap is my propiety?,i have to pay moreover?
  • I would like to learn about subsidized coops buyin opportunities
  • That was a great article. Thank you. Wouldn't a coop shareholder lose money if he/she were to sell the apt back to the coop housing after living for 20 years due to inflation..please comment.thank you again
  • Can Board of Directors pick a committee themselves and the committee meet secretly and then go only to those shareholders they know will make up their 51% in order to start the buy out process without notifying the other 49% of shareholders?
  • East Midtown Plaza has never "officially voted to privatize"--this article is in error. So far, in over 7 years, the Board of Directors has wasted over $2 million in legal fees to Mr. Berkey, and all that shareholders have received in return was a compact fluorescent light bulb!
  • Your reporting on EasttMidtown is not accurate. East Midtown Coop did not get 2/3 vote by apartment. They are now contesting it should be by shares. The board lost in the lower court and on Sept 28 it is being contested in the Appellate Court. I must say for those of us opposed we must raise our funds to pay our lwyers. The privateers spent one-half million of tenants' money.i
  • You mentioned that "another Mitchell Lama co-op left the program in 2002, but the reason was that its mortgage term had run out." When the mortgage term runs out, what are the obligations, if any, of the mortgagors and the mortgagees concerning renewal in the program? Thank you
  • would I be able to find a apt to buy at Atlantic Terminal Two complex?
  • Can one building of a multiple building of a similarly ny state supervised & regulated coop leave the the group by itself and incorporate and privatize itself alone as a separate entity?
  • East Midtown Plaza did not vote for privatization. However, the Board decided that they did and we have now been in 3 court processes all of whom have agreed that we did not vote for privatization. The day after the last court came out with a decision the Board sent a memo that there is still away to go private with a different way of counting the votes and the Mitchell llama law allows this. It is time they gave up.
  • RE: The following paragraphs at the bottom of the above article. COMMENT: I met a 100-year-old woman who moved into her apartment at 75 Henry Street (that went private in 2009) who has been taken to housing court every year to get her evicted. The New York City Department of Aging and Elder Victim's Unit is aware of this situation and she was provided a social worker. However, the centenarian is still being harassed. PARAGRAPHS BEING COMMENTED ON: A number of other, non-Mitchell-Lama, limited-equity co-ops have "bought out," including 75 Henry Street, and Williamson says, "the process has taken several years." And the bottom line says Berkey is to remember that there still is a sense of community in these buildings so that concerns about privatization will ultimately be addressed. "I haven't seen any where there's been any aggressive action taken by a co-op that was once a Mitchell-Lama to force people out. I don't think that's ever been considered. They are neighbors and friends and there's no reason to do it."
  • Diane Tillman Simpson on Sunday, November 10, 2013 7:40 AM
    In 1995 my aunts Esther and Lillian Tillman owned a co-op @ 156-20 Riverside Drive...A Mitchell llama developement. When my aunt Lillian passed away in 1995, I received a settlement of $4000. I never thought this amount was correct but there was nothing I could do about it. They lived in that property for over 20 years and that is all the buy out was worth. I still have the share holder certificate. If anyone can explain this to me or give me more information I would appreciate it.
  • my building is in process of conversion from ML to condopp. They implemented the rule that shares for the apartment could be bought only by person whose name is on the lease. my husband was on the lease, but, he doesn't live in the apartment for some time and I do. The point is that I want to purchase the apartment and I was told I can not because my name wasn't on the lease, though my name was always on the affidavit showing my income and my presence as the occupant. Is ther anything I can fight the proposed rule
  • Djurdjica, though this is not my primary profession, I am about to get my real estate license for the sole purpose of selling co-ops in my recently converted building. Anything your husband owns should be community property and anything he rents, while you are married should belong to both of you. Do your homework, read the specifics of the laws and use technical and specific legal terms when approaching your board of directors. The more informed you sound, the more likely they are to take you seriously. If you ultimately have no choice but to threaten to sue them, they will most likely decide that it's cheaper to simply allow you to buy the apartment at the inside's price. Bear in mind though, that unless you are legally divorced, these laws will work both ways and your husband will most likely end up owning half of the apartment, after you buy it. And if you are legally divorced, then most of what I said above may be moot. You won't have legal ground to fight for the apartment, but you could still try. If the Board of Directors doesn't know the status of your marriage, you still might be able to get them to back down.
  • a girl in brooklyn on Monday, August 15, 2016 7:06 PM
    Zac Congrats on your real estate license! I am in a building that has begun privatization discussions. It has been tense in the building. I am wondering, if we eventually do go private, , and I want to sell, is the closing process of a Mitchell-Lama apartment the same as selling a private apartment? Many years ago I helped an older relative of mine sell their apartment (not an ML) and I remember the selling/closing process was kind of a nightmare. Are there special taxes, fees, documentation, etc (other than the flip-tax) that a ML shareholder has to pay or provide to the State and the Board? Like I said I don't think my building will go private, and if it does it wont be for many years, but in deciding whether I want to vote private or not, I am taking everything into consideration, including the nightmare of closing. Thanks in advance for any help you provide!
  • East Mid-Town Plaza again is looking for a vote on a feasibility study . The shareholders are petitioning the boards voting process like the Brooklyn building complex. East Midtown plaza wants and open vote not the indirect proxies that keep the board in power for years though a non democratic process.
  • I would love to see privatization happen over at Gouveneur Gardens in the Lower East Side of Manhattan. Why not reap the benifits of selling and just moving somewhere else ? Its like leaving cash on the table people.