Goya, The Inquisition Tribunal
Has this ever happened to you or your client? It happened to Richard Nixon, Madonna and other famous indiviudals.
They were not allowed to purchase cooperative apartments in New York City because their applications were rejected by the Board of Directors. Clearly, it was not due to money. Security was the reason given. And that may be an acceptable reason for rejection. But that is not the point of this post. The point is A REASON WAS GIVEN. The Board disclosed it because of media pressure but, under New York law, they were not required to give ANY reason.
That’s right. Under New York law, a Board is under no duty to tell the buyer, or seller for that matter, why a purchase application was rejected. Many a buyer and seller have been left frustrated because it is the custom and practice of co-op Boards to keep the reason secret.
The law, created by the Courts, which allows this tyranny to exist is called the Business Judgment Rule. Courts give almost unfettered discretion to Board members to decide who gets the privilege of living with them. If in the Board’s “business judgment” the buyer is uacceptable, a Court will not second guess it and that’s the end of the story. But is it really? No.
Although the Board has discretion which Courts do not interfere with, the law draws the line on clearly illegal actions, such as discrimination under The Fair Housing Act. But here’s the Catch-22. Since the Board is not legally required to disclose its reason for rejecting a buyer, how is a buyer to prove the reason was illegal?
So, what’s a rejected buyer do? We know that, after cursing the Board, rejected buyers are told there is nothing they can do and just look for another place. But what if you are a protected class (race, religion, color, sex, familial status, etc.) and you know in your heart of hearts you were discriminated against. For people used to discrimination, that’s easy to tell by the questions they were asked, for example. And then there’s the discrimination Boards don’t even realize is illegal. Many do not know, for example, that rejecting a buyer simply because that person is a single parent is illegal. So, until this non-disclosure law is overturned, here’s the solution for those who want to fight for their right to housing.
File a complaint with HUD (US Dept. of Housing & Urban Devcelopment) or the Human Rights Commission. Here is the link for the New York HUD office & the HRC locations. The initial hearing is informal and you don’t need a lawyer, although I always think it wise to consult one beforehand.
Now, at the hearing, guess what the first question asked of the Board will be? You guessed it : “Why was this buyer rejected?” And now the Board has NO CHOICE but to give the reason. Now you’ve succeeded in turning the tables and putting the Inquisitor on the rack. After the hearing you will be notified whether there was a likelihood of discrimination in your case. No damages are awarded but with such a finding you can take the case to court. At this point, Boards are usually ready to settle.
Sic semper tyrannis!
Caveat: Because Boards have the right to secrecy under this undemocratic law does not mean rejected buyers can use HUD or HRC just to force them to disclose the reason for rejection when there is no real basis to suspect illegality.
UPDATE: New law may require Co-op Boards to give written reasons for rejection in New York. See post here.
