A Manhattan federal judge has granted preliminary approval to a $60 million settlement resolving claims that New York City stripped property owners of their homes and accumulated equity through a foreclosure program that plaintiffs say disproportionately affected Black and Latino communities, attorneys said Thursday.

U.S. District Judge Jennifer L. Rochon for the Southern District of New York on Wednesday certified a settlement class of former owners whose properties were transferred through the latest round of the city's Third Party Transfer program, finding she would likely be able to approve the agreement as "fair, reasonable, and adequate."

The deal covers claims arising from the transfer of 64 properties containing approximately 839 units, including 30 buildings owned by housing development fund corporations, according to the plaintiffs' settlement memorandum.

Judge Rochon authorized notices inviting former owners to submit claims and scheduled a final approval hearing for May 5, 2027.

The lawsuit challenges the city's failure to compensate owners for their surplus equity, meaning the value of their properties beyond outstanding municipal liens.

Among those owners was McConnell Dorce, a Haitian immigrant and retired machinist who had owned his Brooklyn property since 1977. He alleged that the city took it despite his keeping up with an agreement to pay overdue water and sewer charges. He learned of the transfer when signs appeared notifying tenants of new ownership, according to the amended complaint.

Dorce died in February 2026, before the settlement agreement was finalized in August.

Fellow plaintiff Cecelia Jones, a retired home health aide from Guyana, alleged that the transfer of her Crown Heights, Brooklyn, cooperative building wiped out her shares' value and made her a renter in her own home without compensation. Judge Rochon appointed Jones as settlement class representative.

"We're not challenging the right of the city to take the property. We're challenging the right of the city to keep more than the taxes," Alexander Simkin, a Ropes & Gray LLP partner representing the plaintiffs pro bono, told Law360 Thursday.

Claims concerning roughly 500 properties transferred during nine earlier rounds remain pending, Simkin said. The city argues those claims are time-barred, and the parties appeared in court Thursday on the plaintiffs' motion to certify a class covering those owners, he said.

Defendants deny the allegations and maintain that they complied with the law, according to the settlement memorandum.

Andrew Stern, a spokesperson for the New York City Department of Housing Preservation and Development, confirmed in an email to Law360 that the settlement has been reached.

"The Mamdani administration and the City Council are working together closely to update and strengthen [Third Party Transfer] in a way that addresses the concerns outlined in these suits and that better serves New Yorkers and our goal of creating and preserving safe, stable housing for tenants," Stern said.

Created in 1996, the program offered an alternative to the city taking ownership and managing deteriorating buildings itself. Properties with delinquent municipal charges could pass through foreclosure to Neighborhood Restore Housing Development Fund Corp., a nonprofit intermediary, and eventually to developers selected to rehabilitate and manage them as affordable housing.

Outstanding charges could include property taxes, water and sewer bills and emergency repair expenses. Owners could lose their ownership and equity even when they remained in their apartments as tenants.

A 2019 City Council investigation found that half the 420 properties initially selected for Round 10 did not qualify as "distressed" under the law because outstanding municipal charges amounted to less than 15% of their value. Many selected properties ultimately avoided transfer.

Council members also questioned why properties selected for the program were concentrated in predominantly Black and Latino neighborhoods, according to a hearing transcript. Simkin said the city's block pickup policy amplified that impact.

Under the city's interpretation of the law, selecting one property for foreclosure meant including other eligible properties on the same tax block with overdue municipal charges. That could sweep in neighboring buildings even if they were well maintained and owed relatively little.

"And then the program targeted not just them but their neighbors," Simkin said.

At the hearing, then-HPD Commissioner Louise Carroll defended the program as a tax enforcement and housing stabilization tool. She denied using racial data to select properties and said those ultimately transferred had substantial arrears and hazardous conditions.

Settlement payments would generally reflect claimants' calculated losses, subject to individual limits. Eligible claimants whose lost surplus equity was worth less than $25,000 would receive $25,000, according to the settlement memorandum.

Attorney fees, expenses, administration costs and service awards would come out of the fund. Counsel may seek fees and costs totaling up to 30%, subject to court approval.

The litigation began in March 2019 and survived an initial dismissal following a partial reversal in 2021 by the U.S. Court of Appeals for the Second Circuit, which held that the former owners could pursue compensation for the city's retention of their surplus equity without overturning the underlying state foreclosure judgments.

The plaintiffs' position gained support from the U.S. Supreme Court's unanimous 2023 decision in Tyler v. Hennepin County , concerning a Minnesota county's retention of surplus value following tax foreclosure. In that ruling, the court held that keeping property value beyond the amount owed in taxes violated the Fifth Amendment's prohibition on taking private property for public use without just compensation.

The plaintiffs are represented by Alexander Simkin, Bradley McKnight, Cambrey Dent, Chloe Aubuchon, Gregg L. Weiner, J. William Piereson and Mohammed S. Hassan of Ropes & Gray LLP, Matthew L. Berman, Robert John Valli Jr. and Sara Wyn Kane of Valli Kane & Vagnini LLP, Yolande I. Nicholson of Yolande I. Nicholson PC, and Cody Lehrer and Keith Howard Wofford of White & Case LLP.

The municipal defendants are represented by Andrea Bonnie Feller, Daniel Kuo Crandall, Kent Michael Langloss, Margaret Amanda Devoe and Michael S. Adler of the New York City Department of Law.

Neighborhood Restore and BSDC Kings Covenant are represented by Brian J. Markowitz, Katherine Greer Kuras and Rachel J. Hong of Tarter Krinsky & Drogin LLP.

The case is Dorce et al. v. City of New York et al., case number 1:19-cv-02216, in the U.S. District Court for the Southern District of New York.

--Editing by Jay Jackson Jr.