Capitol Alert

California misspent $330 million that should have helped homeowners, court holds

California must use money it obtained from banks through a lawsuit over unfair mortgage practices to help homeowners after the state’s highest court rejected arguments from Gov. Gavin Newsom’s administration that it could use the money for other purposes.

The state secured the money in 2012 as part of a nationwide settlement with Bank of America, Citigroup, JPMorgan Chase, Wells Fargo and Ally Financial.

California as a whole received $18 billion as part of the settlement, according to Bee archives. Much of that money went directly to homeowners.

State government received $410 million and set aside $331 million for programs to help homeowners with legal assistance and consumer education. But Gov. Jerry Brown and the Legislature instead used most of the money to pay off state debts from housing bonds.

Community groups including the National Asian American Coalition sued the Brown and Newsom administrations were sued for using the money for general purposes. After lower courts sided against them, the Newsom administration appealed to the Supreme Court.

“In light of the desperate budget shortfall then facing the State of California, the California Legislature decided to devote most of its share of the settlement proceeds to offsetting existing costs for assisting homeowners and protecting consumers,” the administration argued.

The Supreme Court declined to review the case Wednesday, making a lower court ruling against the administration final.

Department of Finance spokesman H.D. Palmer called the precedent set by that decision “problematic,” but said it would follow the court’s ruling.

“While we are very disappointed in the final outcome of this case, we will now move forward to implement this decision,” he said.

Republican state lawmakers had urged the Newsom administration not to appeal the case, arguing the state had enough money to spend on struggling California homeowners.

“With a record surplus of $21.4 billion, there is simply no reason to continue this legal dispute,” they wrote to Newsom in April. “Our economy has moved beyond the depths of the recession, but many in our state are still struggling.”

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Sophia Bollag covers California politics and government. Before joining The Bee, she reported in Sacramento for the Associated Press and the Los Angeles Times. She grew up in California and is a graduate of Northwestern University.
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