Records, statistics and interviews show:
* The city's Work Advantage program, which pays to house families in apartments for up to two years, has a checkered track record.
* The Department of Homeless Services, which runs Work Advantage, has put families in homes facing foreclosure, illegally converted apartments and units riddled with violations.
* Some landlords are shaking down Advantage tenants for extra under-the-table payments.
The city refused to release a full list of where Advantage's 12,000 households are placed, but The News obtained a random sample of 70 across the city.
Within that sample, the city placed seven families in properties that were in foreclosure - and two more in illegally converted apartments.
The 70 Advantage buildings had a total of 2,376 housing code violations, including 13 with more than three per unit.
The problems are surfacing five years after Mayor Bloomberg promised to trim by two-thirds the 37,000 homeless in shelters. Records show the number remains the same.
The number of families in shelters has risen to 10,000 from 6,900 since Bloomberg took office, and the cost to run the shelters went from $540 million to $865 million.
Perrier Verdiner, 50, and his daughter Sephora, 18, spent a year in a shelter before the city moved them into an illegally converted apartment in February 2008, he says.
Records show the owners of 109 Ralph Ave. in Bedford-Stuyvesant turned two apartments on the building's first floor into four units.
Though Ralph Avenue Properties has been hit with 12 code violations for illegal conversions, the city continues to pay the company $900 a month in the Advantage program.
The conversion has created ridiculous conditions. Perrier Verdiner sleeps in the kitchen, a few feet from the refrigerator and stove. A thin partition separates him from his daughter's bed.
A faulty boiler has left them with no heat.
A woman living in another of the illegal apartments confirmed that she also received the subsidy.
The owner was fined $14,000 for violations, a city spokesman said. More than $5,000 of that hadn't been paid as of early January.