Federal Preemption of Rent Regulation Under FIRREA

Abstract

After hundreds of savings and loan institutions became insolvent in the 1980s, Congress enacted the Federal Institutions Reform, Recovery, and Enforcement Act, which was designed to provide affordable mortgage financing to low and moderate income individuals, and to dispose of the assets of the failed savings and loan institutions. Among the powers granted by FIRREA to the FDIC was the ability to disaffirm or repudiate leases held by insolvent institutions if those leases are deemed burdensome. In Resolution Trust Corp. v. Diamond, the United States District Court wrongly held that FIRREA cannot be construed to allow Federal preemption of State and local rent regulations, even with respect to tenants other than the low and moderate income individuals that FIRREA was designed to protect. While protections for low and moderate income tenants are appropriate, the language of FIRREA does not preclude Federal preemption of regulations as they are applied to high income tenants. By disallowing preemption with respect to this class of leases, the Diamond decision undermines the goals of FIRREA by preventing the FDIC from maximizing the net present value of the assets of failed financial institutions