Divested Black and LatinX Homeowners Win Appeal in Federal Civil Rights Lawsuit Filed Against NYC for Illegally Seizing Their Properties; City Must Now Defend Homeowners’ Claims For Millions in Compensation

Three Central Brooklyn homeowners of color who had filed a federal class action civil rights lawsuit in 2019 challenging the City of New York’s taking of their properties as unconstitutional were handed a victory on Wednesday when the United States Court of Appeals for the Second Circuit ruled that their suit could proceed. 

“Our clients, working families, had their only generational wealth, their homes, snatched from them by the City of New York under its Third Party Transfer Program.  They were not given any compensation for these illegal and unconstitutional takings and even though the City tried to get our lawsuit tossed, the Court has now acknowledged that our suit should continue to move forward,” said Matthew L. Berman, one of the plaintiffs’ attorneys with the law firm Valli Kane & Vagnini LLP. 

The City conducted the seizures as part of the Department of Housing, Preservation and Development (“HPD”)’s Third Party Transfer Program (“TPT”).  TPT confiscates the entire property value of a home from the owner, even if the homeowner only owed the City a few thousand dollars in taxes or water and sewer charges.   HPD under Mayor DeBlasio would then hand the houses, and that excess value, for free to development organizations of his administration’s choosing.  Two of these not-for-profit entities, Neighborhood Restore Housing Development Fund and BSDC Kings Covenant Housing Development Fund Company, are defendants in the suit.  

The plaintiffs allege that the TPT constitutes an unlawful “taking” of real property, that they were denied due process of law, and that the City’s selection of property in predominantly Black and Brown communities violates the equal protection clause of both the US and the New York State Constitutions.  The plaintiffs aim to represent a class of property owners in the five boroughs who have had their properties ripped away without receiving compensation for their lost equity.   The properties seized by the City in its most recent batch of TPT transfers were collectively valued at more than $66 million at the time the suit was filed, and now are worth much more.  Additionally, the suit seeks to recover the equity value of hundreds of additional properties seized by the City dating back to the early 1990s, with values potentially estimated in the hundreds of millions. 

"We are pleased the Second Circuit agreed with us that the Tax Injunction Act and other legal principles did not serve to block our clients’ claims.  We look forward to litigating the case on the merits in the Southern District where we expect to prevail on our clients’ claims for compensation,” said Gregg Weiner, co-chair, litigation & enforcement practice, Ropes & Gray LLP, one of the lawyers representing the plaintiffs. 

“Before the appellate court, the City championed converting homeowners to renters, even for buildings for which little or no taxes were owed at the time.  However, the court took note of our clients’ allegation that the TPT program targets properties in communities of color and is actually being used to take private property to reward the City’s Mayor’s political allies, and decided that our clients’ case to challenge the constitutionality of these takings can now proceed.  With the decision being issued only days after we commemorated Juneteenth, our clients can celebrate being granted the opportunity to advance the letter and spirit of the US Constitution’s equal protection clause, and to seek redress under this key addition to the Constitution following the Civil War,” said Yolande I. Nicholson, one of the attorneys representing the plaintiffs, in the case as of counsel to Valli Kane & Vagnini LLP. 

The TPT program was subject to scrutiny by the NY City Council, which held hearings on it in 2019, after the lawsuit was filed.  Many agree that the program should be scrapped. A diverse coalition of advocacy, legal and other groups have been united in their opposition to the TPT program. During the course of the case, for example, the NAACP Legal Defense Fund and the Pacific Legal Foundation filed amicus briefs with the court to support the plaintiffs. 

“The TPT program is generally acknowledged to be a terrible and illegal program that confiscates property and takes one hundred percent of the equity in the property from its legal owners.  For these plaintiffs, their houses were their legacy and the only source of potential inter-generational wealth for their families.  Now, many of them have nothing.  This practice is being wielded to target communities of color,” said Robert J. Valli, Jr., a lawyer representing the plaintiffs from the law firm Valli Kane & Vagnini, LLP. 

One of the plaintiffs, Sherlivia Thomas-Murchison, has been left homeless with two children because her home was seized through the TPT program and she received nothing in exchange.  

“We have definitely been cheated and targeted through this program.  The TPT program has affected my family in many ways.  My family and our neighbors who should have remained shareholders in the building have lost real, personal and future assets and value in the millions of dollars, not even measuring the value of having a home for the long term.  My now deceased mother worked, for close to 25 years, to ensure that our family would have long-term residency in an already-existing affordable housing coop. The City took that away with the stroke of a pen,” said Ms. Thomas-Murchison.  

“The City has said for years that it has the right to take property owners’ value, far in excess of any debt to the City, for zero compensation — and that a federal court cannot review whether that excessive seizure violates the US Constitution.  The Second Circuit, like other Circuits around the country, correctly refused to let the City continue its practice of seizing Black and Brown property owners’ hard-earned wealth for nothing, unless the City can justify and defend those actions in federal Court. The City will now have to defend a program that is not only indefensible but unconstitutional,” said Keith Wofford, another of the plaintiffs’ attorneys with the law firm White & Case. 

Plaintiffs are represented by Ropes & Gray LLP, Valli Kane & Vagnini LLP, attorney Yolande I. Nicholson, and White & Case LLP. 

The latest decision from the Court of Appeals is available upon request as are filed stamped copies of the original lawsuit and a more in-depth backgrounder.