Mayor Bill de Blasio is vowing to escalate a legal fight over water rebate checks for more than 600,000 New Yorkers after suffering a defeat in court earlier this week. NY1's Grace Rauh filed the following report.

It just might be the perfect election year battle for Mayor Bill de Blasio: a fight with a powerful landlord group over $183 rebate checks for homeowners.

The only problem is, he's losing. An appeals court this week ruled against the city.

"It's very disappointing. and it's very disappointing for 664,000 homeowners who heard way back last summer they were going to get $183 back on their bill. And they deserve it," de Blasio said.

The mayor says the rebate checks are meant to offer some relief to homeowners for their water bills. In years past, the bills payed for city services totally unrelated to water. De Blasio long denounced the arrangement. He says he is just trying to be fair.

"They were forced to pay a hidden tax. They deserve something back," de Blasio said.

But the rebate checks are not meant to go to all building owners, only to New Yorkers who own one-, two- or three-family homes. Co-op and condo owners, as well as landlords with bigger properties ,are out of luck. No rebate.

The Rent Stabilization Association, or RSA, sued the city over it.

The RSA's legal action is taking something out of the hands of homeowners. It's as simple as that," de Blasio said.

The water rate for all property owners, meanwhile, was also set to increase under the city's plan.

The head of the landlord group has said that the credits are political ploy by the mayor. 

A lawyer for the Rent Stabilization Association said, "We are pleased that two courts have now recognized that the Water Board lacked a rational basis to implement the proposed rate increase and issue these bill credits."

No matter how the case winds up going, the mayor may win with his base. If he's allowed to give out the checks, that could help him with the 600,000 New Yorkers who get the rebates. And if he loses, well, he can say he fought hard against landlords.