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Homes and Community Renewal

2009-B-03: Amendments of Mitchell-Lama Regulations

To: All Housing Companies
     Owners, Managing Agents and Site Managers

From: Robert Damico, Downstate Director
          Housing Management Bureau

Date: March 27, 2009

Subject: Amendments of Mitchell-Lama Regulations

Please take note of the attached letter from the Commissioner that summarizes proposed revisions to our regulations under the Private Housing Finance Law. Instructions on how to submit comments and other information will be published in the New York State Register on April 15, 2009.

- Robert Damico, Downstate Director
Housing Management Bureau

New York State
Division of Housing and Community Renewal


To:All Interested Parties

From: Deborah VanAmerongen, Commissioner

Date: March 26, 2009

Subject: Comprehensive Amendments of Mitchell-Lama Regulations

I am pleased to inform you that the Division's proposed amendments to its regulations governing housing companies organized under Articles II and IV of the Private Housing Finance Law have been submitted to the Department of State and are scheduled for publication in the New York State Register on April 15, 2009. The amendments can be viewed on the Division's website at We are making the proposed amendments widely available in an effort to solicit maximum input during the upcoming comment period.

As you know, the Mitchell-Lama program provides safe, decent and affordable housing for thousands of New Yorkers and the Division considers its obligation to oversee the operations of this portfolio to be one of its core functions. This effort represents the first time that this agency has undertaken a comprehensive review and modification of its "Mitchell-Lama" regulations since their promulgation in 1965.

Following is a brief description of the Mitchell-Lama program, some of the issues and the rationale for updating the regulations and a summary of the main proposals.

The Mitchell-Lama Law

The Mitchell-Lama Law was enacted to create housing for persons and families of low and moderate-income. Private housing companies ("housing companies"), organized to develop and operate such housing, receive publicly-sponsored mortgage loans and/or local property tax abatements in exchange for DHCR supervision of their operation1 and limitations on profit. Such companies can be either rentals or cooperative developments ("mutual companies" or "cooperatives").

Owners of rental housing companies are limited to a six percent annual return on their initial investment. Similarly, the resale price of a cooperative apartment is limited to an original purchase price (set with DHCR approval), a pro-rated share of the mortgage amortization and capital assessments paid, if any.

Certain housing companies which are financed by New York City are supervised by the Department of Housing, Preservation and Development.

Admission to all housing companies is limited by various formulas which compare family income with either rent or the area median income. Additionally, tenants in occupancy whose income subsequently exceeds the relevant formula must pay a surcharge in addition to their rent or maintenance fee. With respect to tenant selection, DHCR regulations require comprehensive waiting list procedures to assure a fair allocation of apartments.

DHCR conducts site visits, examines housing company books and records, and has oversight authority with respect to almost all housing company transactions. This oversight includes selection and supervision of housing company management, contracts with vendors, biannual budgets, rent increases, tenant selection and commercial leasing.

The statutory remedies for non-compliance with DHCR supervision are limited. The Mitchell-Lama Law provides for removal of the Board of Directors or allows DHCR to seek injunctive relief in a court of law.

Twenty years after initial occupancy, a housing company may "dissolve" and reconstitute as a private for-profit entity resulting in the end of DHCR supervision and the moderate income restrictions of the PHFL.

Mitchell-Lama Issues

There are significant issues facing the Mitchell-Lama housing portfolio. Market forces and overly burdensome regulatory requirements act as incentives to dissolution. For those housing companies that remain in the portfolio, a significant infusion of capital is often necessary to upgrade aging building systems.

However, even for those housing companies that can obtain such capital, the regulations can impede a major redevelopment plan. A typical plan requires the project to participate in multiple funding programs that must be administered in tandem by multiple agencies. Each of these programs has its own regulatory requirements which may duplicate or conflict with the extensive and detailed requirements of the Mitchell-Lama program.

While at its inception the Mitchell-Lama portfolio was relatively homogenous and could be supervised in a uniform manner, this is no longer the case. Some projects are now efficiently run and need minimal supervision, while others require closer monitoring. For example, at some cooperative developments, shareholders have sought additional profit through illicit transfers to new residents irrespective of their income limitations and waiting list procedures. In other developments, cooperative and rental alike, there have been instances of self dealing by managing agents with respect to housing company contracts for services and capital work ("identity of interest" or "IOI" contracts) which, while otherwise necessary for a project's efficient operation, requires significant monitoring to assure fair prices and the appropriate selection of vendors and contractors.

Why Amend the Regulations?

The regulations were first promulgated in 1965 and since then have not been subject to comprehensive review. Entitled "Management Manual," they are filled with detail on the minutiae of property management, unrelated and irrelevant to actual regulatory requirements of the Mitchell-Lama program. DHCR has now undertaken such a review and determined that the regulations need to be revised and updated to accomplish the following:

Amendment Goals

Based on the above findings, DHCR developed the proposed amendments in order to:

Amendment Highlights

1700 - Scope and Definition Provisions

1725 - General Administration

1727 - Occupancy

1728 - Budget and Fiscal

1728-4 - Purchases and Contracts

1729 - Project Management

1750 - Dissolution

1760 - Redevelopment and Refinance

Last updated on 05/14/10