Judge: Brown and Legislature illegally raided homeowners fund

We should have done this a long time ago.  Sue the Goddamn justice department and the Governor for stealing the foreclosure settlement funds.

Gov. Jerry Brown and the Legislature illegally raided a state fund that was created to help distressed homeowners and took $331 million to balance the budget, a judge has ruled.

The money was taken from a fund that contained California’s share of a $5 billion nationwide settlement of a fraud suit by states and the federal government against the nation’s five largest mortgage lending companies: Bank of America, Citigroup, J.P. Morgan Chase, Wells Fargo and Ally Financial, formerly known as GMAC.

The settlement, which state Attorney General Kamala Harris negotiated in 2012 for California, was designated for foreclosure relief, aid to homeowners and other housing-related purposes. Starting in June 2012, however, Brown and the Legislature appropriated most of the fund to help pay down the state’s deficit over three fiscal years, through mid-2014.

Latino, Asian and African American groups sued in March 2014, challenging the diversion of funds.

In a ruling issued Friday, Sacramento County Superior Court Judge Timothy Frawley found that a minor part of the state’s expenditures was sufficiently housing-related, funding for the Department of Fair Employment and Housing and the attorney general’s office, which prosecutes mortgage fraud. But he rejected the state’s defense of $292 million in spending to pay off housing bonds, and ruled that $331 million had been spent in violation of the terms of the settlement.

Frawley acknowledged that he lacks authority to order the state to return the money because of court rulings shielding the governor and Legislature from such orders. But he said the state was “obligated to restore” the money to the mortgage fund and must do so “as soon as there is a sufficient appropriation reasonably and generally available.”

That shouldn’t take long, the groups that filed the suit said Monday, because California is now running a considerable budget surplus.

“It will go to the 2 million homeowners who are still facing foreclosure or who are still in distress,” said Faith Bautista, chief executive of the National Asian American Coalition.

Robert Gnaizda, a lawyer for several groups in the suit, said the groups have written letters to Republican and Democratic legislative leaders to work out a plan to restore the funds. He said they are also seeking support from Harris, whose office usually represents state agencies in lawsuits but did not do so in this case. The state instead hired private lawyers.

“It’s not clear that the governor has a good option in an appeal,” Gnaizda said.

Harris’ office declined to comment on the ruling, but cited the attorney general’s statement in May 2012,when Brown first proposed using mortgage fund money to balance the budget. “While the state is undeniably facing a difficult budget gap, these funds should be used to help Californians stay in their homes,” Harris said then.

H.D. Palmer, spokesman for Brown’s Finance Department, said the administration is reviewing the ruling and hasn’t decided yet whether to appeal. While denying any wrongful appropriation, he disputed assertions that the state treasury has ample funds on hand to restore the funds.

“While we are in a much better position than we were several years ago, we are precariously balanced,” Palmer said.

Bob Egelko is a San Francisco Chronicle staff writer. E-mail: begelko@sfchronicle.com Twitter: @egelko


2 thoughts on “Judge: Brown and Legislature illegally raided homeowners fund

  1. Reblogged this on California Freelance Paralegal and commented:
    Sacramento Superior Court Judge Timothy Frawley issued a ruling last week that California Governor Jerry Brown and the State Legislature illegally raided a state fund that was created to help distressed homeowners and took $331 million to balance the budget.


  2. Great post Roger. To be honest I am not surprised that Governor Brown pulled this stunt. After all he has slashed billions from the California Courts budget over the last few years while pouring money into a pink elephant boondoggle that is popularly known as the bullet train to nowhere or the “Moonbeam Express.”


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