New York City has agreed to pay $60 million to settle part of a federal class-action lawsuit challenging its “third-party transfer” program, a housing initiative that allows the city to seize properties from delinquent owners and transfer them to responsible landlords. The program, established in 1996, aimed to address deteriorating housing conditions but has faced criticism for allegedly targeting Black and Latino homeowners disproportionately.
The settlement announced Monday pertains to properties seized during the program’s tenth round of transfers, conducted between 2017 and 2018. During that period, the city transferred titles for 64 properties encompassing around 839 housing units. The broader program, now largely paused since 2019, has transferred ownership of more than 590 properties, totaling over 7,300 homes, according to court filings.
The lawsuit, filed in 2019 in Federal District Court in Manhattan, argued that the city violated constitutional protections by failing to provide just compensation when it seized properties from owners. Plaintiffs claimed that owners were not adequately notified or compensated and that many seized properties did not meet the city’s criteria of “severe financial or physical distress.” The lead plaintiff, McConnell Dorce, who had owned a home in East Flatbush, Brooklyn, since 1977, fell behind on utility payments but was enrolled in a repayment plan when his property was taken without notification or compensation. He passed away in February prior to the settlement.
Critics have also pointed to the program’s “block pickup” feature, which permitted the city to seize all properties on a block if any owner owed even modest amounts in back taxes, a practice said to disproportionately affect minority neighborhoods in the Bronx and Brooklyn. A 2019 City Council investigation found that many properties targeted under the program did not meet the official distress criteria.
City officials maintain that the program’s goal is to improve living conditions by transferring properties from negligent owners to affordable housing developers. After foreclosure, properties are transferred to Neighborhood Restore, a nonprofit that works with developers to manage and rehabilitate the housing. Andrew Stern, a spokesperson for the city’s Department of Housing Preservation and Development, stated that the city does not concede any violation of former owners’ rights but opted to settle the litigation to resolve the longstanding dispute. The settlement still requires approval from a federal judge.
Mayor Zohran Mamdani, who has advocated for stronger tenant protections and turning over poorly maintained properties to responsible owners, supports efforts to reform the program. His administration is backing legislative measures aimed at eliminating the controversial block pickup practice and improving criteria for identifying negligent landlords. Councilwoman Pierina Sanchez, chair of the City Council’s housing and buildings committee and a sponsor of the pending bill, emphasized the need to focus on the “worst of the worst” property owners.
Plaintiffs’ attorney Alexander Simkin, however, argued that while reforms are a step forward, they fail to address the program’s core issues, including alleged racial disparities and inadequate compensation for those affected.
The settlement follows a 2021 Supreme Court ruling that states violate constitutional protections if they seize and sell private property while retaining proceeds beyond what is owed in taxes or debts. City officials have indicated ongoing efforts to revamp the program to ensure compliance with legal and community standards.