Series: The Rent Racket How landlords sidestep tenant protections in New York City.

New York City’s biggest housing subsidy may finally get more scrutiny just as state lawmakers are about to consider a massive expansion of the controversial program.

The $1.4 billion-a-year program, known as 421-a, is designed to wipe away most of the property taxes owed by real estate developers who agree in return to limit annual rent increases in new apartments they have constructed. For buildings in Manhattan as well as expensive neighborhoods in other boroughs, a certain percentage of units must also be set aside for low-income renters.

But, as ProPublica has been reporting since last year, the city has routinely given out the tax benefit without first making sure that developers hold up their end of the bargain, in part because of divided oversight between city and state regulators.

We found that nearly two-thirds of the almost 6,400 rental properties paying reduced property taxes do not have an approved application on file with the city Finance Department, the most basic step for enforcing the rules. That’s because most of the landlords don’t bother to register their apartments for rent stabilization with the state as required by law. As a result, thousands of New Yorkers may be paying more rent than they should.

These loopholes would be tightened under two bills jointly introduced today in City Council by the chamber’s housing committee chair, Jumaane Williams, and Stephen Levin. Both represent rapidly gentrifying Brooklyn.

The legislation would, for the first time, require the city’s housing arm to audit 421-a properties annually to make sure that owners comply with the rent-registration, affordability, and application requirements. The agency would have to audit at least 20 percent of all 421-a buildings each year. If a building is out of compliance, the housing agency would report it to the Council Speaker and tell the Finance Department to revoke the tax benefits for the period of the violation.

A second bill would extend a similar audit requirement to the low-income units required to be set aside by developers in high-priced neighborhoods, including Manhattan and the Brooklyn and Queens waterfronts.

The Real Estate Board of New York, which represents developers, said it agrees with the “general thrust’’ of the bills but will “have some specific changes to suggest,’’ spokesman Jamie McShane said in an email. He declined to elaborate.

The importance of auditing the 421-a program was underscored in an October 2009 audit by the City Comptroller, which found that 70 percent of the properties they reviewed did not have the proper paperwork on file showing they were approved for the tax break.

Read the Investigation Thousands of NYC landlords who ignored rent caps got tax breaks they didn’t qualify for. Read the story.

Levin said he and Williams introduced the legislation in response to ProPublica’s investigation, which profiled a building in his district, 125 Court Street. The 321-unit luxury building had received the tax break for nearly a decade while incorrectly claiming most units were exempt from rent stabilization. Although it hadn’t obtained approval for the tax break, the landlord collected more than $10 million of benefits anyway while overcharging tenants in both low-income and market-rate apartments. The owner, Two Trees Management, said at the time that it had refunded all overcharges and corrected the problems.

“I find it unconscionable that during an affordable housing crisis, these landlords are receiving millions in tax breaks to provide rent-stabilized housing, and are instead raising rents that push New Yorkers out of their homes,” Levin said in a statement.

The 421-a program has been suspended since January while the real estate industry and construction labor unions worked out an agreement on wages for construction workers in larger buildings collecting the subsidy.

Last week, the two groups announced a deal which would extend the tax break to 35 years citywide. That might cost the city at least an additional $560 million per year on average over the next ten years, according to an analysis by the city’s Independent Budget Office.

The Mayor’s Office and the city’s housing department, which are spearheading their own efforts to bring owners of 421-a buildings into compliance, said they were also open to the bills.

“As we continue to work closely with state enforcement agencies and go after landlords who are cheating taxpayers and flouting the rent regulation and 421-a rules, we will gladly review legislation intended to further that goal,” said Melissa Grace, deputy press secretary for Mayor Bill de Blasio.

One of Mayor de Blasio’s signature housing initiatives has been to boost legal aid for low-income tenants. The 421-a program provides legal protection against evictions and over-charges of tenants in its buildings.

Brooklyn Legal Services Corporation A, a prominent provider of legal assistance to tenants, endorsed the council members’ bills and said Mayor de Blasio should devote more attention to the plight of tenants in 421-a buildings.

Olga Ortiz was illegally evicted from her Bushwick apartment to Hunts Point, a far-away industrial neighborhood in the Bronx. (Edwin J. Torres for ProPublica)

“The lack of an enforcement mechanism to ensure that landlords receiving the 421-a benefits actually keep their properties rent-stabilized is shocking and must be addressed immediately,” the organization said in a statement. It called the council bills “the type of strong enforcement of existing law that is needed.”

Even if the bills are passed, they wouldn’t take effect for another year. That’s too late for Olga Ortiz, a Bushwick resident featured in the October article.

Ortiz’s landlord had claimed her three-bedroom $1,660-per-month apartment was not rent stabilized. So when he raised her rent and moved to evict her in late 2014, she thought she had no choice but to move. After ProPublica’s article was published, Ortiz brought an action against the landlord in Brooklyn Housing Court, hoping to return to her old apartment.

Lyric Thompson, her former neighbor, accompanied Ortiz to a hearing yesterday and brought a stack of papers in an effort to show the landlord had lied to Ortiz about the legal status of her apartment. After a short hearing, the judge dismissed the request on the grounds that testimony by Thompson, Ortiz’s witness, didn’t merit giving Ortiz her apartment back.

After the hearing, the landlord’s attorney declined comment. Asked what she’d like public officials to learn from her experience, Ortiz said simply: “Do something.”