The income-verification police: Part 1, claim

April 5, 2011 | Affordability, Apartments, Cities, Co-ops, Income verification, Litigation, New York City, Rental, Theory

By: David A. Smith


To live in any particular urban housing, you need a minimum income, because you have to afford the payments.  (Even the most wretched urban slums have an occupancy cost, and public housing has operating costs and means-adjusted resident copayments.)  To live in any particular affordable housing, you need a maximum income, because you have to qualify your eligibility.  When in the pure Lockean marketplace, independent parties dealing at arm’s length, income determination is simple – you pay the rent or you get evicted – so the landlord has little reason to look into the sources of your income; he cares only that the rent is paid on time. 


Can you come up with the dough?


Or does he?  When it comes to the living clubs known as co-ops, the income-verification secret police have limitless powers – and that’s what raises this New York Times story from the level of a stupid rich-people busybody neighbor spat into a teapot tempest illustrating larger principles:


1.         The elusive ideal of the ‘suitable rent’


Because you are what you live in, we all have an instinctive sense of what’s a “suitable rent” and what’s “suitable housing,” and both are tied to the resident’s household income.  We calmly accept that rich people can live in bigger houses, poor people in smaller ones, and that this is a legitimate use of household earnings.  Maybe that is why, when the housing seems outsized, we condemn it as a McMansion or conspicuous consumption.  In any case, for some deep psychological reason, we believe that those who live near us should consume housing with some reasonable similarity to ours – and who lives nearer than the busybodies upstairs and down in a co-op?  So let’s open the scene:


Do I look overextended to you?  Buddy Fletcher


It was not that long ago that Alphonse Fletcher Jr.’s fifth-floor apartment at the Dakota on the Upper West Side was a salon for wealthy and famous guests who traded ideas and chatter at his popular parties. Mr. Fletcher, an accomplished financier, opened his home to fellow Harvard alumni for fund-raising events, and to fellow black notables like Anna Deavere Smith and Anita Hill, two of more than three dozen people who have been given the honor of being Fletcher Fellows, each one receiving a $50,000 stipend from him.


Without making this story either an analysis of or a referendum on Mr. Fletcher, it seems abundantly clear that he sought not only to enter a particular kind of society, but to thrive and rise within it.  (It’s not my milieu so I am only speculating.) 


In a building whose name brings to mind Lennon, Bacall and Bernstein, Mr. Fletcher may not be the most famous resident, but he was already one of its most intriguing, even before he took on its board. In college, he was a member of ROTC, which convened at MIT, as well as the Harvard Gay and Lesbian Caucus; the reason he says he needs more space is because he is now married, and he and his wife have a young daughter.


He also had no shyness of the limelight:


Mr. Fletcher, right, at the Harlem Educational Activities Fund awards dinner in 2005, is involved in a variety of philanthropic efforts.


In this dynamic mix, Mr. Fletcher included his neighbors and members of the Dakota co-op board, who enjoyed cocktails, nibbles and an occasional performance by Mr. Fletcher leading guests in sing-alongs as he played “Purple Rain” on his piano.


At the time, Mr. Fletcher (known as Buddy) was in a long-term relationship with Hobart V. Fowlkes Jr., but after that cooled, Mr. Fletcher met and eventually married:


Despite becoming president, Mr. Fletcher began to spend more of his time in California, with Ellen K. Pao, a Bay Area venture capitalist he met at a conference and married in 2007. “Human beings aren’t so simple that you can characterize them as straight or gay,” said Mr. Fowlkes, Mr. Fletcher’s former companion. He still works for Mr. Fletcher and is the godfather of his daughter, Matilda. “What I will say about Buddy is that he’s my very best friend and I would do anything for him.”


None of which is anybody’s business, except that when it comes to income verification, inevitably it bleeds into lifestyle scrutiny, and Mr. Fletcher’s has been much more visible than most.


And I’m normally such a nice guy


In recent months, Mr. Fletcher’s 2,600-square-foot, three-bedroom apartment has largely been silent. And Mr. Fletcher is engaging in one of the ugliest co-op battles in the world of Manhattan real estate. This month [February, 2011 – Ed.], Mr. Fletcher, 45, sued the co-op board (full text here, in pdf), which he once led, charging it with racial discrimination because he was not allowed to buy a neighboring apartment, and accusing it of discriminating against other residents and applicants, too, including the singer Roberta Flack.


We’ve seen in previous posts that co-op boards elevate discrimination to a sublime art, although they normally shield themselves by arguing, in effect, We don’t discriminate against blacks.  We discriminate against everybody.  Which, America being the land of those free to be snobs, is perfectly legal.  Indeed, the co-op board’s response is even more grounded in facts:


The Dakota has fired back, and its response was not so much an opening salvo as a full-scale barrage. The board said it was not credible that a man who already owns four units in the Dakota — the apartment he lives in, one he bought for his mother and two small ones for storage and for his employees to use — could claim that he was being treated unfairly.


That is a good sound bite – if we’re so discriminatory, why did we let you buy four apartments?  And had the board rested there, and retreated to lordly silent disdain (gods do not give reasons), it might have been able to weather the opprobrium. 


We know what we know and we’re not telling what we know


Yet the board felt compelled to respond by going to the heart of income verification.  As reported in an earlier New York Times story (in Verdana) on the Board response:


The Dakota, one of Manhattan’s most exclusive apartment buildings, has struck back at a former co-op board president who accused it of racial discrimination, releasing financial documents that suggested he did not have the resources to buy the apartment he was seeking.


Here is where it gets interesting – for a housing person, anyhow.


Now it gets juicy


2.         Applicant self-certification


At the start of any income-eligibility determination is self-certification – the applicant lists all of his or her household income, expenses, assets, and liabilities, to be pawed over by the reviewing landlord.  Typically these certifications are signed under pains and penalties of perjury, a useful trick because it elevates false statements from mere peccadilloes into felonies.


On Tuesday, the board filed a 237-page response in State Supreme Court that denied Mr. Fletcher’s claims and said he simply lacked the wealth he claimed.


For his part, Mr. Fletcher had been using the Groucho Marx approach – who are you going to believe, my financial statements or my spending rate?


He has given away millions to New York and Ivy League institutions, and has pledged to give away tens of millions more, elevating a few eyebrows in the building.


Remember, in a living club, any behavior can be condemned if it signals you are one of ‘those people’ and not one of us – which is why I’ve always adopted Groucho’s motto.


“I wouldn’t belong to any club that would have me as a member.”


In any case, Mr. Fletcher had plenty of visible means of expenditure:


Even for a Dakota resident, Mr. Fletcher was living well. He had a string of chauffeured cars including a Bentley, a Porsche, a Mercedes and a Jaguar. He bought homes in Montauk and Southampton, which he lent out to employees during the summer; he later sold the homes. He bought 1,100 acres in Litchfield County, Conn., with a storybook house employees called the Castle. He had his own security team.


Now, all of these flamboyant spending is by itself no proof of long-term financial viability – Bernie Madoff demonstrated that all too well, as the New York Mets have repeatedly learned to their regret.  


I was a pillar of society


In an effort to allay the board’s concerns that his expenditures might be exceeding his income, Mr. Fletcher made a grand gesture:



He agreed to pay all cash, $5.7 million, and then to prepay two years of maintenance for all five apartments, or more than $400,000.


One would think that would be sufficient – no debt, and prepaying the fees?  But nooo …


But noooo!


Despite that, the board said it was concerned about whether Mr. Fletcher had the wherewithal to support mortgages and expenses on his various properties.


How did the board reach its contentious conclusion?  Through its own internal income eligibility verification.


It’s horrible, horrible


[Continued tomorrow in Part 2.]