Landlord who created fake tenants will repay real ones but avoid fines

A Manhattan landlord sued by tenants for illegally jacking up rents has entered an agreement with the attorney general to repay them tens of thousands of dollars.

Despite the overcharges, the owner, 560-568 Audubon Realty, and its principals, Fred and Alex Hay, won’t be fined. Often regulatory authorities seek penalties to deter would-be offenders.

In the case of 560-568 Audubon Avenue in Upper Manhattan, the landlord concocted fake tenants to hike the maximum rent of stabilized units, using the 20 percent vacancy bonus under the old rent law, the attorney general found.

The owner also claimed it had performed individual apartment improvements that were never done, allowing it to double the legal rent, in some cases. (Such increases were later curbed by the rent law enacted in June 2019, a month after the attorney general’s probe began.)

When 560-568 Audubon Realty wanted to sign a real renter, it would use the same scheme to raise the rent again. All the while, the landlord reported to the state’s Division of Homes and Community Renewal charging rents greater than those listed on the lease. Reporting inflated rents allowed for larger future rents.

“When we looked at a tenant’s lease it would say: You have a preferential rent of $1,000 but the legal rent is $2,000. And then the registration would say the preferential rent is $2,000; the legal rent is $3,000,” said Matthew Chachere, attorney at the Northern Manhattan Improvement Corporation, who represented 30 of the building’s tenants in a suit filed in 2016.

The scheme began to unravel when 560-568 Audubon Realty slapped one of its former tenants with a nonpayment suit.

Chachere said Marlene Santos de Martin, a tenant in 16A, showed up at his office with a letter stating she owed rent. But 560-568 Audubon Realty had evicted de Martin months before.

“That of course makes no sense because if they evicted her, then they terminated the relationship [and] she can’t owe money,” Chachere said.

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The firm advised de Martin to request her apartment’s rent-registration history from Homes and Community Renewal, the state agency that polices the rent stabilization. The records showed not only that the apartment was occupied by someone else and “being rented for some astronomical amount,” said Chachere, but that the landlord had leased it to a new tenant in July 2010, nearly a year before de Martin had moved out, according to court documents.

“That person never existed,” said Chachere.

The landlord had created an illusory tenant leasing the apartment at a higher rent than de Martin had paid, so that it could charge a future, actual tenant even more for that unit.

The lease signed by the fake tenant — “Amanda Nunez” — reported a rent of about $2,854 to the state, more than twice the $1,350 that de Martin had paid. To justify $2,854, the owner would have had to spend more than $50,000 on improvements. The lawsuit, filed in 2016, alleged the work never happened.

When a real person named Maria de la Rosa leased the apartment in 2011, she agreed to pay about $3,360 per month. That’s 149 percent more than what de Martin had paid, and would have required $106,200 in improvements plus the vacancy increase, the tenants’ complaint said. For good measure, the landlord told the state she was paying even more — $3,486.

Chachere said his firm took on nonpayment cases from other tenants in the same building and ultimately filed subpoenas for the entire building’s registration history. Documents showed a “huge number of very short-term tenancies that were probably illusory, and massive increases in the rents,” he said.

The attorney said the same pattern existed across more than half of the building’s 90 units.

On a hunch, Chachere subpoenaed refinancing records from 560-568 Audubon Realty’s lender. An affidavit from one of the principals listed the actual rents charged, and they were far less than what the owner had reported to the state, Chachere said.

That put Audubon in an unenviable position.

“They had a Hobson’s choice: They could either admit that they were lying to HCR or they could commit financial fraud by telling the bank the numbers for the leases were in fact not real,” Chachere said.

The owner soon agreed to a settlement, Chachere said, the details of which are confidential. The landlord could not be reached for comment.

The 2019 reform, called the Housing Stability and Tenant Protection Act, subjected owners to six years of treble damages, up from four, increasing the potential payout for tenants.

Chachere said the repayment agreement with the attorney general will cover the 59 stabilized tenants who were not a part of the 2016 suit.

James’ office did not say why it did not penalize 560-568 Audubon Realty beyond reimbursement for the overcharges.

“We do not comment on our negotiation process,” a spokesperson for the attorney general said.