Vegas property owners challenge FDIC’s foreclosure authority

Two Las Vegas property owners say the Federal Deposit Insurance Corp. is at risk of violating their constitutional rights by foreclosing on properties that are still the subject of unresolved tort claims. The case comes at a time when the FDIC’s role as the fixer of “too-big-too-fail” financial firms is only growing.  The recent Dodd-Frank Act, which was drafted after the 2008 financial meltdown, outlined a process for appointing the FDIC as both the receiver and liquidator of financial firms that pose a risk to the overall economy. Yet, the Las Vegas plaintiffs contend the regulator’s power is at times “draconian.” The plaintiffs in the case — Vegas Diamond Properties LLC and Johnson Investments LLC — say the FDIC took over properties that they have an ownership stake in when it seized troubled lender, La Jolla Bank FSB. Prior to the failure of La Jolla Bank, the plaintiffs filed a suit against the lender over a series of loan transactions that they claim were handled fraudulently and negligently. Because the underlying tort claims against La Jolla are still unresolved, the plaintiffs are asking the Ninth Circuit to rule that the FDIC’s authority to sell off La Jolla’s assets is trumped by the plaintiffs’ constitutional property rights, allowing them to stall any sales. The plaintiffs say without the property, they have no chance at a real recovery if they succeed in the underlying tort claims. While a district court already granted the plaintiffs a 30-day stay that expires Feb. 26, Vegas Diamond and Johnson Investments say without an injunction, the FDIC will be free to rid itself of the properties before the underlying case can be heard. Write to Kerri Panchuk.