Audit Critical of HPD's Management of 8A Rehab Loan Program

The Article 8A Loan Program run by HPD provides rehabilitation loans to correct substandard or unsanitary conditions and to prolong the useful life of multiple dwellings in New York City. Rehabilitation is generally limited to the upgrading or replacement of major building systems with an emphasis on energy items. In general, loans cannot exceed the actual cost of rehabilitation. Loans are available in amounts of up to $35,000 per dwelling unit with no maximum per building, subject to the availability of funds. Loans may not be used to refinance existing debt on the property.

A recent audit from the New York State Comptroller has found some significant troubles in the 8A program over the past few years. It seems that some owners who have taken out multimillion-dollar loans, with interest rates of as little as 1 percent have been neglecting agreed-upon repairs.

The audit found that 415 violations, such as faulty fire escapes and heat problems, weren't addressed in the contractually mandated time frame. That figure includes 93 "Class C" violations—the most serious category—defined as those that present an "immediate hazardous condition."

When the audit was performed in late 2013, one building had a lead paint violation that had been outstanding since 2008, and another had mold problems dating all the way back to 2006. Another building’s owner was nearly two years late installing child-safety guards on windows, and only corrected the problem after auditors asked about it.

According to the audit report, city inspectors admitted to auditors that they had monitored code violations in just three of 34 buildings examined in the audit. "In summary," the audit says, "HPD officials do not actively follow up on the violations and repairs that building owners agree to address and are an integral part of their Article 8-A loan contracts."

In addition, HPD offered some owners lending rates that were lower than they should have been. The rules of the program allow interest rates from 1 to 3 percent, depending on how profitable the building is. But 3 percent is the default, and lower rates have to be justified. The audit cites several cases where lower interest rates were given out with no apparent reason.