Tenants’ Committee Wins Dismissal of Chapter 11 Filing, Paves Way for Rehabilitation of Run-Down Apartment Building
October 29, 2007
Cleary Gottlieb represented a low-income tenants’ committee in obtaining dismissal of a chapter 11 bankruptcy petition by the owner of a Brooklyn apartment building, thereby permitting the U.S. Department of Housing and Urban Development (HUD) to foreclose and transfer the building to a responsible HUD-approved, non-profit buyer that can rehabilitate the building that badly needs repairs.
The apartment complex suffers from nearly 1,500 New York City housing code violations, more than 1,000 of which are classified as hazardous or immediately hazardous.
In June 2007, facing imminent foreclosure by HUD for failure to maintain the building in a habitable condition and to make mortgage payments, the owner filed a bankruptcy petition, thereby staying the foreclosure. Cleary Gottlieb, on behalf of the tenants’ committee, argued that the court should dismiss the case on the grounds that the bankruptcy petition had been filed in bad faith and that allowing the owner to maintain ownership of the building would only delay an inevitable foreclosure, forcing tenants to continue living in uninhabitable conditions, diminishing the value of the property, and exposing the estate to potential liability as conditions continued to worsen.
Cleary Gottlieb successfully convinced the U.S. Department of Justice, the City of New York, and HUD to join the tenants’ committee’s request for dismissal. At a hearing on September 6, 2007, Bankruptcy Court Judge Dennis Milton dismissed the chapter 11 case with prejudice, and barred the owner from filing another bankruptcy petition for 6 months, enabling HUD to recommence foreclosure proceedings and transfer the building to a responsible, adequately financed non-profit buyer.