Bankrupt Landlord Must Return Overcharge

In 1987 tenant complained of a rent overcharge to the DHCR. In 1990 landlord filed for bankruptcy. In 1991 a bankruptcy trustee was appointed. In 1992 the DRA ruled for tenant and ordered landlord to refund $18,000 in overcharges. Tenant deducted the overcharge award from her monthly rent for several years until it was all credited. The bankruptcy trustee then claimed that tenant must pay back the money deducted for the overcharge because the DHCR's order was issued after the trustee was appointed. The trustee claimed it was in the position of a buyer in a judicial sale who wasn't responsible for prior landlord's overcharge. The bankruptcy court ruled against the trustee. The judicial sale rule doesn't apply to successors through landlord's bankruptcy. And tenant could recoup the DHCR award from rent even after the bankruptcy trustee was collecting rents.

In re 105 E. Second St. Assocs.: Case No. 90B12895, Adv. Proc. No. 96-8820A (4/2/97) (Bankruptcy Ct, S.D.N.Y.; Gallet, J) [12-page document]