How Low Can You Go California?

How low can you go. California stole money meant for victims of the financial crisis, then fought it in court for years and even changed the legislation to try and avoid repayment.


How low can you go. California stole money meant for victims of the financial crisis, then fought it in court for years and even changed the legislation to try and avoid repayment. Fortunately, this was met head on by judges in robes who care about their community and have made sure that California complies and repay the national mortgage settlement cash it finched from its own citizens.

Gov. Brown urged to return $331 million meant for homeowners

Originally Published: July 6, 2015 | Republished by LIT: Nov. 15, 2020

SACRAMENTO – Several California lawmakers and community assistance groups are calling on Gov. Jerry Brown to repay more than $331 million in funds intended to help homeowners struggling with foreclosures that the state siphoned off to help deal with its budget crisis.

A Sacramento County judge found that the governor and state Legislature unlawfully diverted most of a fund that was part of a $25 billion settlement between five major banks and nearly every state in 2012.

Brown’s attorneys argued the state had the discretion to use that money in the state budget. But the judge sided with the community assistance groups in ruling the money should be used to help California homeowners affected by the mortgage crisis. The ruling by Sacramento County Superior Court Judge Timothy Frawley was issued last month, but it has not been finalized.

The Democratic governor hasn’t decided if he will appeal, his finance department spokesman, H.D. Palmer, said Monday. Brown’s administration did not to respond to questions about whether he would agree to return the money.

“Governor Brown, do the right thing,” said Faith Bautista, chief executive and president of the National Asian American Coalition, a nonprofit housing counseling group based in Daly City, California, that was the lead plaintiff in the lawsuit. “This is long overdue because we should have helped the homeowners since 2012. And now it’s 2015.”

The groups say the money should have been distributed to an estimated 800,000 homeowners affected by the foreclosure crisis. The homeowners would have used the money for things such as helping get loan modifications, restoring credit scores, buying new homes or paying for moving.

Instead, Brown and the state Legislature, as they struggled to balance California’s budget, spent the lion’s share of California’s $410.6 million mortgage settlement fund to offset state expenses for housing bond debt service, as well as to support the Department of Justice overseen by California Attorney General Kamala Harris and the Department of Fair Employment and Housing, which investigates housing discrimination.

State budget documents called the money “discretionary funds.”

The National Asian American Coalition was joined in a lawsuit by two other California-based community organizations that say they have helped thousands of homeowners, COR Community Development Corporation and the National Hispanic Christian Leadership Conference.

The lawsuit was filed by attorney Neil Barofsky, former inspector general for the federal bank bailout. The lawsuit said the state should now repay the money because it is projecting budget surpluses in coming years.

Harris, the state’s attorney, recused herself in the case because she helped negotiate the national settlement with banks, securing extra funding for California. Her spokeswoman, Kristin Ford, said Monday that the attorney general continues to object to the money being used for other purposes than for which it was intended.

“While the state is undeniably facing a difficult budget gap, these funds should be used to help Californians stay in their homes,” Harris said of the governor’s spending proposal back in May 2012.

Even though the court ruled against the state, the judge noted that he lacked the authority to order the state to repay the money because of the state government’s separation of powers.

“The court shall assume that the Legislature and respondents will take whatever steps are necessary and appropriate to meet this obligation,” Frawley wrote in his preliminary June 12 ruling. The judge is considering motions before signing his decision, and it’s not clear when it may be finalized.

In response, Senate Minority Leader Bob Huff of San Dimas and fellow Republican Sen. Janet Nguyen of Garden Grove sent Brown two letters, including one that offered to support legislation restoring the funds.

The GOP letter noted that the community assistance organizations have been unsuccessful in their efforts to meet with Brown’s staff. “This money should be returned to California homeowners who need it,” Huff said.

It’s also not clear if the two Democratic legislative leaders support repaying the money. Messages left for Assembly Speaker Toni Atkins of San Diego, and Senate President Pro Tem Kevin de Leon of Los Angeles weren’t immediately returned Monday.

The Brown administration has hired the law firm Remcho, Johansen & Purcell to defend it. Taxpayers have paid the firm more than $220,000 to date, Brown’s finance department said.

California must repay national mortgage settlement cash used to balance state budget Mortgage crisis

California homeowners were supposed to receive state assistance after the Great Recession’s mortgage crisis. Most of that money, however, went to help balance the state’s budget.

JULY 19, 2019

SACRAMENTO — Gov. Gavin Newsom’s administration said Friday it would begin work on transferring $331 million back into a special fund designed to help California homeowners hit hard by the recession-era mortgage crisis, money that the courts have ruled was wrongly used to help balance the state budget.

The California Supreme Court refused earlier this week to hear an appeal by the administration disputing lower court rulings that found the state mistakenly used a portion of the money — paid by large banks and lenders as part of a nationwide legal agreement in 2012 — to pay off housing bonds.

In some cases, those bonds were enacted a decade before the mortgage settlement.

In all, three years of state budget expenses were covered by a portion of what California received from the mortgage settlement.

The decision to use the money was championed by Newsom’s predecessor, former Gov. Jerry Brown.

Legislators subsequently ratified the plan, and last year went even further: They passed legislation seeking to block a court ruling to repay more than $331 million into a fund originally designed for statewide homeowner assistance efforts.

Groups that waged a five-year court battle over the funds expressed relief that the legal fight was finally over.

“Truth prevails,” said Faith Bautista, president and chief executive of the National Asian American Coalition. “They’re now facing the reality that the money belonged to the homeowners in distress.”

While the money in question was undoubtedly tempting at the time it was diverted — California’s budget was still reeling from successive years of back-to-back deficits — the state’s coffers are now overflowing.

The budget signed by Newsom last month includes $19.2 billion in cash reserves, making the repayment of the mortgage settlement money limited only by how fast state leaders can take action. The Legislature will return next month for the final weeks of its 2019 session.

The money diverted to state budget needs was a small portion of what both California homeowners and the government received from the national settlement agreed to by 49 states in 2012.

Those states, along with the federal government and the District of Columbia, had earlier filed suit against the nation’s five largest mortgage servicers: Ally (formerly known as GMAC), Bank of America, Citigroup, J.P. Morgan Chase and Wells Fargo.

The legal action alleged a number of federal law violations, and the financial institutions agreed to pay more than $20 billion to homeowners affected by the mortgage crisis. The companies also agreed to pay the states a total of $2.5 billion.

California’s share of the state payments was $410 million, to be used for a variety of services directed by then-Atty. Gen. Kamala Harris. But most of the money was used instead for budget-balancing items which, while related to housing, were long-term costs that further shrank the funds available for basic government services.

A coalition including representatives for Asian American and Latino communities sued the state in 2014 over its decision to use the money to help erase a projected budget deficit. A Sacramento judge ruled for the coalition in 2015 and the 3rd District Court of Appeal agreed with that ruling last year.

State leaders, however, refused to back down. At the end of the 2018 legislative session, lawmakers and Brown crafted a bill that said the money was used correctly, and the enacted law sought to give the Legislature the power to “abrogate,” or revoke, the appeals court order to replenish the spent money.

In April, the same appeals court again rebuked state officials.

“It is the judicial branch that has the constitutional authority to interpret statutes,” the three-judge panel wrote in its ruling, stating that the mortgage settlement “money was unlawfully diverted from a special fund in contravention of the purposes for which that special fund was established.”

On Wednesday, the California Supreme Court refused Newsom’s request to hear the case, allowing the appeals ruling to stand.

“Now that the Supreme Court has issued its decision in this matter, we will move forward to implement the ruling,” said H.D. Palmer, a spokesman for the California Department of Finance.

Bautista, whose Daly City-based group works with low-income communities of color across the state, said she hopes the $331 million will be supplemented by money from the nation’s leading lenders to offer services such as down payment assistance for those who went through foreclosure during the housing crisis and want to again own a home.

She said other services, including financial literacy efforts and those helping Californians with low credit scores, should also be considered. And she urged Newsom to make such efforts part of his larger discussion about the state’s housing crisis.

“People are hurting in East L.A., Riverside, the Central Valley,” Bautista said. “Let’s pick what’s best and use the money wisely.”

Neil Barofsky, an attorney who represented the groups that fought the cash diversion in the courts, said it was disappointing that state officials spent so many years on “frivolous appeals,” culminating in what he called the “ginned-up legislative action” last year designed to block repayment of the money and the appeals court ruling.

“We understand it was a desperate time for the state when this happened,” he said. “But once we returned to surpluses, the idea that they would just keep fighting this has been breathtaking.”

How Low Can You Go California?
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