Court upholds RTC right to evict rent-controlled tenants.

In theory, the Resolution Trust Corporation can now begin repudiating leases and evicting rent-stabilized and rent-controlled occupants of the cooperative and condominium units that it owns in New York, now that the U.S. Supreme Court has refused to review the case further.

The RTC claims, however, that chances are the tenants will remain in place. Because it only has 46 units left under its control, and because it would be difficult to evict these long-term tenants, a spokesperson expects nothing will happen.

Nevertheless, others axe suspicious of the RTC and are unsure what will happen to tenants.

The case, RTC vs. Diamond, only directly affects between nine and 19 units at 444 East 57th Street. Here, luxury apartments were being occupied by rent-control led and rent-stabilized tenants that were allowed to remain under New York State non-eviction plans when the buildings were converted.

In 1990, the RTC attempted to exert its Congressional powers to repudiate and cancel leases, and moved to either evict the tenants or force them to purchase their apartments at a market price.

Sources said the initial termination letters were sent by mistake, but once the elderly tenants were confronted and the press and politicians rallied, the RTC continued with its actions simply to test its powers.

The tenants, along with former State Attorney General Robert Abrams and the Division of Housing and Community Renewal that governs the rent-regulated units, began legal moves to keep the Feds from exercising control of the New York State-regulated tenants. Over the years, the courts flip-flopped and the parties kept appealing.

Finally, the U.S. Supreme Court sent the case back to the 2nd Circuit Court, said Gary Conner, the assistant attorney general in charge of real estate financing. Once issues were explained to its satisfaction, the Supreme Court declined to once again take up the matter earlier this month, leaving the RTC's powers intact.

Meanwhile, New York's Sen. Daniel Patrick Moynihan and Harlem Congressman Charles Rangel attempted to pass a Tenant Protection Act that is yet to make it through Congress. Rep. Carolyn Maloney has also been involved in the fight.

Although rental apartment house owners hailed the decision as another indication of the ridiculous subsidies provided to such occupants, others were shocked that the government could breach the protections granted by the state legislature when it allowed non-eviction plans in the first place.

It was merely the financial vagaries of the sponsor and lender, after all, that resulted in these units coming under the control of the Federal government. In most cases, the sponsor defaulted to a lender that ultimately was taken over by the RTC, whose mission was to sell assets from failed lenders and obtain the greatest return for American taxpayers.

Thus, the local legislators have been hard-pressed to obtain the backing of other Congressional delegations, whose constituents would now be asked to help support New York City's rent-regulated tenancies.

The case brings into sharp focus what happens when sponsors hold rent-regulated apartments and are paying out maintenance far in excess of the rents, noted co-op attorney Edward T. Braverman, who heads the law firm Braverman & Associates. "It's a little chink in the armor [of rent regulation]," he added. "There is no reason that a private landlord should subsidize tenants."

But Braverman believes the RTC decision is very limited because it doesn't apply to many properties.

Rent Stabilization Association President Joseph Strasburg said there should be a statute that preempts all state and city rent regulations. "When they lift controls, they can sell it for more," he explained.

Apartments occupied by rent-regulated tenants that are paying usually far less in rent than the actual maintenance costs have been even hard to give away in this city.

During the course of the many trials, Conner said they had calculated about 2,200 units under RTC control. He was aware the RTC had been selling units, including over 100 at Le Havre in Whitestone last year. In fact, most of the units have been sold and RTC spokespeople were able to come up with only 46 remaining in four boroughs.

Brice Peyre, a spokesperson for Rep. Jetold Nadler, said they were very concerned. "The Congressman was on the phone when he learned about this decision," he said. Nadler had been given assurances by Robert Altman, the former head of the RTC, that while they might be pursuing the legal principals, no evictions would be taking place. "Altman is now long gone," said Peyre. "And it remains to be seen what will happen." The current RTC Deputy and Acting CEO is John E. Ryan, formerly of the Office of Thrift Supervision.

A spokesperson for the RTC said it will consider the income of the tenants and determine if a repudiated lease would create a substantially different outcome for sales. One problem, he said, is that there is a time element involved, and since the leases were not repudiated promptly it would now be difficult to evict these tenants.

"You are not wanting to throw people out, but the RTC's function is to recover money from the sale of assets and we need to take these factors into account," said the RTC spokesperson.

Stuart M. Saft, a partner with Wolf Haldenstein Adler Freeman & Herz, is one of those concerned the repudiation of leases would pass to those who purchased some of the RTC's units. "Some investors who bought apartments took the position that the RTC assigned to them all rights, title and interest. And that included whatever rights the RTC had to terminate," he explained. "My fear of this decision is that it will open the way for these investors to terminate those rights."

Not to worry, says Mark Zborovsky, a broker who specializes in bulk sales who has sold over 800 of the units for the RTC over the last few years. "The [investors] have not bought those apartments with the understanding they are the RTC and can start pushing people out," he said. "If, God willing, these deals could have been arranged that way, I would be the one buying them and mortgaging my house and my wife, because you could make a fortune. But the RTC was never even hinting that you could be the RTC."

Sources insist the RTC officials have not yet made up their minds but will probably try to sell the higher value apartments at 444 East 57th Street, where there are no low-in-come tenants. A decision will be made within the next three months. But even if the apartments are now sold to an investor who "officially" is transferred the RTC's repudiation powers, the tenants may continue the fight, with their lawyers saying the investors are not the government.