ee
ee 40
On’ Pes The Association of the Bar
"A | eof the City of New York
\ 42 West 44th Street
Sint. SePr.
January 4, 1960. : A.int. | AePr.
MEMORANDUM
SUPPORTING PROPOSED AMENDMENTS TO THE
REDEVELOPMENT COMPANIES LAW (SECTIONS
3403, 3404, 3408 and 3412 OF THE UNe
CONSOLIDATED LAWS
The proposed amendments to the above captioned statutes deal
with Titie I and middle-income housing.
The promotion and sponsorship of middle-income housing, whether
in conjunction with a Title 1 slum clearance program or on low-cost land,
usually involves employment of the provisions of the socalled middle-income
subsidy statutes. The two vehicies most commonly used for this purpose are
the Redevelopment Companies Law and the Limited-Profit Housing Companies Lawe
The former provides for partial tax exemption, and the latter provides, in
addition to partial tax exemption, for primary financing by the State on the
basis of lower interest and amortization rates than are obtainable under FHA
financing or conventional financing.
The employment of the techniques for creating middleeincome housing
through the use of the statutes is increasing at a rapid rate. In the course
of handling projects under these statutes, attorneys in the field have found
@number of technical deficiencies in the manner in which these statutes are
written, which require correction. Some of these have led to litigation and
others, if not rectified, represent a potential source of contention, Ac-
cordingly, those on the Real Property Law Committee of the Association who
specialize in the field of housing assembled the technical changes required
to help effectuate the concept of these statutes.
The Redevelopment Companies Law was enacted in 1941 and was origi-
nally conceived for the purpose of permitting insurance companies to bulid,
own and operate middleeincome housing. It was subsequently amended to broaden
its scope to permit other than insurance companies to engage in the develop-
ment of such housing. Some of the sections in the law, however, remained
anachronistic and consequently unsuitable to the broadened scope of the sta-
tute. The Limited-Profit Housing Companies Law, however, was enacted in 1955,
and was written specifically for the purpose which it is currently serving.
In aii instances, the proposed amendments to the Redevelopment
Companies Law merely conform the provisions of that law to the existing proe-
visions of the Limited-Profit Housing Companies Law....where appropriate to
ae more workabie provisions of the said Limited-Profit Housing Companies
aWe
SECTION 3405
The broadening of the definition of real property in this proe
posed amendment would make the provisions of the Redevelopment Companies
Law comport with the provisions of the Limited-Profit Housing Companies
Law insofar as the scope of the term "real property” is concerned.
SECTIONS 3404 & 3408
The proposed amendment would make the provisions of the Re-
development Companies Law under Sections 3404 and 3408 correspond with the
provisions of the Limited-Profit Housing Companies Law insofar as the Limited
return on investment is concerned. The formula presently contained in the
Redevelopment Companies Law predicating the six percent return on total
actual final cost of the project in view of the interest and amortization
rates currently prevailing is totally unrealistic and unworkable, since the
amount of those fixed charges frequentiy in and of themselves exceed the
6% limit and leave no return for the investor. The formula as contained in
the Limited-Profit Housing Companies Law was evoived under more recent con-
ditions and is workabie under the circumstances existing in today's market.
SECTION 3412
1. The section as presently written provides that a redevelop-
ment company may borrow funds and secure the repayment by bond and morte
gage or by issue of bonds under a trust indenture. This language has been
interpreted as prohibiting a loan by note and mortgage. Ne reason exists
to distinguish between bonds and notes in this situation, and the proposed
amendment, by adding the phrase “as used in the section the term 'bond' in-
cludes a note” at the end of the section, would clarify the authority to
use notes as weil as bonds. In recent years similar legislation has amended
the Banking Law and virtually all other laws relating to mor tgage investe-
ments to permit use of notes wherever bonds may be usede
2e The present language of the third paragraph of Section 3412
would appear to inhibit FHA financing by redevelopment companies projects
since under FHA procedures the building loan frequentiy is assigned after
completion of the project te become the permanent mortgage. The two-year
limitation presently contained in the statute on the temporary financing
would appear to make such errangements illegal since the long-term mortgage
when handied by assignment wotid heave to exceed such limitation. The pro-
posed amendment in paragraph four of the section, as to the maturity of 2
construction loan, would remove the twoeyear maturity Limitation and other
restrictions when the funds are made available under FHA programs.
SECTION 3412 (CONTINUED
Se Section 3412 presently provides that only first mortgages
are legal investments for banks, savings and loan assocfations, etc. In
Titie 1 situations, where the property is acquired from the city and the
city takes back a purchase money mortgage, this Section would prevent a
sponsor from obteining secondary financing except through non-banking
subordinate mortgage lenders. It is proposed by the amendment to allow
such secondary financing or junior liens in redevelopment companies pro-
jects by adding the word "secondary" and making junior lien plural in
Place of "a second" as contained in the first sentence of the fourth
paragraph of Section 3412. It would also eliminate the entire second
sentence of that paragraph.
4. The present language in the act with respect to the maxi- |
mum amount of the mertgage loan is confusing and creates uncertainties | |
regarding an extremely important element in the act, that is, the maxi-
mum amount of the mortgage loan. The mortgage officers of lending insti- |
tutions had assumed that the amount of the mortgage loan would be limited,
during the construction period, to 80% of the estimated cost of the pro-}
ject, Thereupon, on completion of the project and certification of the
actual cost by the supervising agent, the maximum amount of the loan
would be finally determined at 80% of such certified actuai cost. This
would be sound practice for redevelopment companies whose costs are supere
vised and controlled by the supervising agent.
However, the present language of the act seems to inject
the element of an appreisal during the construction period and contains
language which confuses the situation of a loan for a project during
construction, and a loan which may be made upon a completed project of a
redevelopment company. ee. | “a
Appraisals during the construction period are of no real
value to the lending institution. These appraisals made by an outside
appraiser involve unnecessary expenses. The appraiser usualiy takes the
estimate cost figures and then makes a finding that the project is ap-
praised at the estimated cost. Upon completion of the project the ape
praiser obtains the actual cost certified by the Comptroller and then ape
praises the project at such certified cost. This is useless,
in fact, the lending institution in its commitment Limits
the maximum amount of the loan. The lending institution has satisfied
itself with regard to the plans and specifications and the estimated
cost. The lender requires the redevelopment company first to advance
ite 20% of the estimated cost of the preject. Thereafter the lender makes
monthly advances based upon actual development cost for the previous month
less at least 10% of such actuai expenditure which is retained until the
i et sy is certified by the Comptroller. Thus the lender has complete
control,
When a mortgage loan is made on a completed project of a
redevelopment company, it then does make sense to require an appraisal.
“3
2
SECTION 3142 ‘CONTINUED)
The proposed amendments provide that in such a case (completed project)
the maximum mortgage loan may not exceed 80% of the appraised value or
the previously certified actual cost, whichever is less.
The amendments take the form of adding to the second
paragraph the words “and in no event.....e" (the underlined portion)
and eliminating from that paragraph the words “or eighty percentum...*
and also adding the words “or in the case of ..e..eis less."
In the third paragraph the words “and in any event does
| not exceed...." are added and the words “or eighty percentum....." are
eliminated.
| in the fourth paragraph the words "and shall not in any
event exceed...." are added, and the words "but in no event in excess..."
are eliminated, 7
yo IOS
MEMORANDUM pr 4 /O%
Bi: ie 20 5, fF. 2903
Mr. Bush
This bill would make several changes in the law creatingg
the Limited Profit Housing Mortgage Corporation (Chapter 675 of
the Laws of 1959). These changes have been requested by the
officers and directors of that Corporation and are essential to
continued participation by those banks and insurance companies
which have, to date, indicated an intention to become members of
the Corporation.
The bill would amend Section 306-a of the Public Housing Law to:
(a) Authorize the Corporation to issue and sell notes and
other evidence of indebtedness in addition to debentures.
(b) Limit the sale of such obligations to members of the
Corporation or other like institutions and companies.
(c) Qualify the power of the Limited Profit Housing Mortgage
Corporation to invest in first lien mortgages on improved
real property which may be subject to secondary liens or
any other minor encumbrances,
(d) Reduce the number of directors who need to be residents of
the State of New York to seven,
(e) Clarify the relationship of the vote of each member to
the amount of its loans or advances to the Corporation or
to the amount of its commitment until such loans or
advances are made,
bty
Clarify the method of filling vacancies on the Board of
Directors of the Corporation,
Provide for amendment of the By-Laws.
Eliminate any suggestion of mandatory participation by
the members up to one-half of one percent (or any other
percentage) of their assets.
(i) Limit the participation, liability or other obligation of
the members to or through the Corporation to the amounts,
terms and interest rates stated in their respective appli-
° cations for membership, or any subsequent written agree~
ments or commitments.
(j) Provide that, after giving notice of withdrawal, but prior
to the effective date thereof, the bligation of any mem-
ber shall be limited to its pro-rata share of amounts
specified in loan commitments appgroved by the Board of
Directors prior to the date of such notice.
vk) Make the capital stock of the Corporation a legal in-
vestment for the banking institutions and insurance
companies who become members,
> 09
This bill results from numerous conferences had with the officers
and directors of the Limited Profit Housing Mortgage Corporation
and with counsel of the various banking institutions and insurance
companies who are members thereof, or who have indicated an intention
to become members, The various provisions of the bill follow closely
the By-Laws of the Limited Profit Housing Mortgage Corporation, as
adopted on Sept. 21, 1959 and most recently amended on Dec. 16, 1959.
-
FRENCH, FINK, MARKLE & CONWAY
COUNSELLORS AT LAW
HARRY N. FRENCH (1908-1959) 110 EAST 42ND STREET
JOSEPH G. FINK
JOSEPH MARKLE
FRANCIS X. CONWAY
NEW YORK 17, N. Y.
DONALD G. McCALLION
FRED P. ELLISON
ROBERT J. FINK
TELEPHONE OXFORD 7-0880
March 3, 1960
Rez: A. Int. 3724
Hon. William H. MacKenzie, Chairman
Ways and Means Committee
Assembiy Chambers
Albany 1, N. Y.
Dear Sir:
The Legislative Committee of the Building
Industry Employers of New York State and the Building
Trades Employers Association of the City of New York
which we represent approves the above bill] by Mr,
Curto,
Very truly yours,
FRENCH, FINK, MARKLE & CONWAY
cc Mr. Curto
March 15, 1960
Hon. Robert MacCrate
Executive Chamber
State Capitol
Albany 1, New York
Dear Mr. MacCrate:
i am enclosing herein a memo in
support of my bill Intro. 3724, Print 4905
amending the public housing law, in relation
to the rights, powers, duties and obligations
of oe limi ted=profit housing mortgage corp-
O?ration.s
I would appreciate your recommending
to the Governor that he sign this bill.
Thanking you, I am.
Sincerely,
Ernest Curto
Member of Assembly
EC-d1
encl,
By Mr. Curto
H
: To amend Assembly Bill Int. No, 3724, Print No. 3872
Page 1, line 11 After “and” delete “unomewnbered” ani sub-
| stitute “unenduabe
Page 2, line 14 After “all of" delete "whieh" and substi-
|
tute "whem"
Page 2, line 28 Between “state” and “thereby” insert a comma
Page 5, line 9 After "interest" aml before "paying" insert
Page 5, lime 12 After “corporation and before "shall" insert
| & comma
Page 5, line 14 After “to” and before "but" insert a comm.
AN ACT
To amend the public housing law, in relation to the
rights, powers, duties and obligations of the limited-~
profit housing mortgage corporation.
The People of the State of New York, represented in
Senate and Assembly, do enact as follows:
Section 1, Subparagraphs (ii) and (iii) of paragraph |
(b) of subdivision two of section three hundred six-a of the
public housing law, as added by chapter six hundred seventy-
five of the laws of nineteen hundred fifty-nine, are hereby
amended to read as follows:
(14) To issue and sell to members of the corporation
or other like institutions and companies its notes, deben-
tures or other evidences of indebtedness bearing such interest
rates and having such maturities and other terms and provisions
as may be determined by the board of directors of the corporation;
(iii) To invest in bonds and mortgages or notes and
mortgages upon improved /and unencumbered/ real property in
areas in this state designated by the board of directors of
the corporation, provided that: (a) The security for such bonds
or notes is a first lien upon such real property, exclusive of
ground rents, taxes, assessments or other similar charges not yet
delin-vent, and (b) there is no condit!.on or right of re-entry
A
on she nam, eommomaiaees on: SLE LLL LDL ELLOS | oe
or forfeiture not incvred_ against under w.iia_suca lien can be
cut off or subordin2ted or otherwise disturbed,
~~.
82, Paragraphs (a), (b) and (4) of subdivision three
of section three hundred six-a of such Jaw. as added by chapter
six hundred seventy-five of the laws of ninet«*: hundred fifty-
nine, are hereby amended to read as foliows:
(a) All the corporate powers of suca corporation shall
be exercised by a board of directors consisting of thirteen per~
sons elected as hereinafter provided, all of which shall be of
full age [ , ] and citizens of the United States and seven
of whom shall be residents of the state.
-2-=
(b) At the first annual meeting of such corporation and
at each annual meeting thereafter the members shall elect ten
directors whose term of office shall be one year, Each of the
members shall be entitled to one vote for each twenty-five
thousand dollars, or major fraction thereof, such member loans
or advances to the corporation pursuant to the provisions of
paragraph (a) of subdivision five of this section. Until all
such loans or advances are made, each member shall be entitled
to one vote for each twenty-five thousand dollars, or major
fraction thereof, of its total commitment to the corporations
(a) /If any director shall lose his citizenship, or shall
eease to be a resident of the state thereby creating a vacancy,
or iff If a vacancy occurs in the membership of the board of
directors through death, resignation or otherwise, the remaining
directors /shall elect a person to fill such vacancy for the un-
expired term.7 elected by the members in the case of a vacancy
occurring in such class of membership, or the remaining directors
elected by the stockholders, in the case of a vacancy occurring
in such class of membership, shall elect a person to fill such
vacancy for the unexpired term.
2 as =
53, Subdivision three of sect.cn toree mundred six-a of
be paragraph (g), to read as follows:
(zg) The nuxber of votes of the board of directors that shall
-—— ene oe —— se - P oe uy eee oF
be necessary to amend, alter or add to the by- ics _of the corpora=
such law is hereby amended by adding thervto a new paragraph, to
tion shall be seven cast by directors elected by the members, except
that the affirmative vote of all directors e’.«="ed_by the members
shall be necessary to amend any by-law which affects the obligation,
liability or commitment of any member, or any of the terms of any
such member's commitment to the corporation,
S4. Paragraph (a) of subdivision five of section three
hundred six-a of such law is hereby amended to read as follows:
(a) The members of such corporation shall consist of
banking institutions, insurance companies, or any combination of
the foregoing, as may make application for membership in such cor-
«3 =
poration, and membership shall become effective upon the acééptance
of such application by the temporary or permanent board of directors,
as the case may be. Each member shall loan funds to the corporation
as and when called upon by it to do so, but the total amount on Loan
by any member at any one time shall not exceed /one-half of one percent
of its funds available for investment, which limit shall be determined
as of the date it became a member, and such amount shall thereafter
be readjusted annually in the event of any change in the base of the
loan limit of such member] the amount agreed to be loaned as stated
in the application for membership of such institution or company or
any greater amount stated in any subsequent written commitment to_or
aereement with the corporation. Said application and said commit-
ment to or agreement with the corporation may set forth the maximun
term and minimum interest rate at which any loan to the corporation
is to be made and, without Limitation, such other terms and conditions
as the board of directors of the corporation shall approve, and the
obligation or liability of any such institution or company to or
through the corporation shall be limited to the amount agreed to
be loaned, the term and interest rate and the other terms and cone
ditions set forth in its application or other written commitment
to or agreement with the corporation, as the case may be, in any
event the total amount on loan by any such institution or com
at any one time shall not exceed one half of one per cent of its
admitted assets, in the case of an insurance company, or of its
total assets, in the case of a banking institution, which limit
shall be determined as of the date it became a member and as of
the date of its written commitment to or agreemert with the corpora-
tion to loan additional funds. Upon six months! prior written
notice to the board of directors, a member of the corporation may
withdraw from membership effective at the end of such six months!
period, except that prior to /and after/ the effective date of such
withdrawal, such member shall be free of obligations hereunder except
[those accrued or committed by the corporation prior to such effect-
ive date of withdrawal,/ for its pro-rata share of amounts specified
in loan commitments approved by the board of directors of the corpora-
tion prior to the date of such notice, Notwithstanding the provisions
~ 4 ao
of any law, general or special, the notes or other interest paying
obligations of the corporation and the capital stock of the corpora-
tion issued in accordance with and by virtue of this section and the
by-laws of the corporation shall be legal investments for the bank~
ing institutions and insurance companies who /became/ become members
of the corporation, up to but in no event exceeding, the loan
limits established herein.
Ss, This act shall take effect immediately.
Explanation: Matter underlined is new; matter in brackets [ _/
is old law to be omitted.
(Division of Housing - Legislation Proposal No. 6)
9 “ — =
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wv
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No. 3872
wage: | IM\ ITED PROFIT it
mi HOUSING CORP. NC OES
a i
ANWR LG
