Jerry Brown, California officials sued over mortgage settlement money

Published: Saturday, Mar. 15, 2014 - 12:00 am

The state of California unlawfully redirected $369 million in homeowner relief secured by Attorney General Kamala Harris, according to a lawsuit filed Friday in Sacramento Superior Court.

A coalition of Latino and African American faith groups and an Asian American home counseling organization brought the lawsuit, demanding that California send millions to homeowners trying to stave off foreclosure.

“To this day, countless California victims of the mortgage and foreclosure crisis and their supporters are waiting to receive any benefit, much less the full benefit, of the settlement the Attorney General obtained for the State of California as compensation for the harms the victims suffered and continue to suffer,” the lawsuit says.

The plaintiffs are represented by Neil Barofsky, who achieved prominence as the aggressive special inspector general policing the $700 billion Troubled Asset Relief Program, which bailed out the spiraling banking industry.

Gov. Jerry Brown, Department of Finance head Michael Cohen and California state Controller John Chiang are named as defendants, although a letter from the plaintiffs notes that Chiang is included out of “legal necessity” given his potential role in a settlement.

Harris in 2012 was instrumental in extracting a landmark $25 billion settlement from banks related to predatory lending practices that helped fuel the housing market’s collapse in 2007. Struggling homeowners were supposed to get financial relief from the deal, and the lawsuit demands that Brown repay millions diverted to plug budget gaps.

“The front-line victims of the crisis, struggling homeowners, received mostly unfulfilled promises they would get the help they desperately needed,” Barofsky said during a news conference.

As California searched for ways to balance its general fund through years of recession, diverting money from other funds became a common stopgap. The budget that lawmakers passed and Brown signed in 2012 transferred $410 million out of the mortgage settlement account.

“The Governor had no legal right to divert these funds in the first place and, even if he did, he certainly has the statutory duty to replenish them in this year of surplus,” the lawsuit says.

A spokesman for the California Department of Finance defended reallocating the money.

“While we haven’t yet seen the complaint, we’re confident that our budget actions are legally sound,” H.D. Palmer said in an emailed statement.

The budget maneuver was controversial. Harris herself opposed using the money to cover a budget deficit, saying in a statement at the time that “while the state is undeniably facing a difficult budget gap, these funds should be used to help Californians stay in their homes.”

The Legislative Analyst’s Office, in contrast, supported the move.

In announcing the lawsuit, National Asian American Coalition general counsel Robert Gnaizda praised Harris for having done “an outstanding job for the homeowners” but said Brown undercut the settlement’s purpose, faulting the “slow and often inadequate pace of homeowner relief.”

The lawsuit asks for the money to be channeled back into a special fund that Harris would then administer. Gnaizda said Harris has so far declined to meet with the plaintiffs but that they would seek to meet with the attorney general to “see how she can play a role in expediting” the payments to homeowners.

The attorney general’s office declined to comment.

Call Jeremy B. White, Bee Capitol Bureau, (916) 326-5543.

Read more articles by Jeremy B. White

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