Litigation
Mar. 19, 2014
Outlook uncertain for nonprofits' suit against governor for siphoning housing cash
A trio of faith and nonprofit organizations want state Gov. Jerry Brown to repay $369 million they say he misspent on reducing state debt instead of helping troubled homeowners.
Daily Journal Staff Writer
A trio of faith and nonprofit organizations wants Gov. Jerry Brown to repay $369 million they say he misspent on reducing state debt instead of helping troubled homeowners.
Their Sacramento County Superior Court lawsuit, filed Friday, follows a chorus of criticism from people in other states who feel legislators ripped them off by siphoning money from a $25 billion national settlement that was meant to make banks pay for alleged predatory lending practices.
But the outlook of the case looks uncertain. A similar lawsuit brought two years ago in an Arizona state court was dismissed during motions, and an appeals court there upheld the decision. The Arizona Supreme Court declined to review the case.
"I thought the [settlement] provisions were tight enough to prevent transferring the money, but the court disagreed," said Timothy M. Hogan, a Phoenix-based lawyer who brought the case.
The Sacramento lawsuit accuses Brown of violating state law and specific terms reached with California in the national settlement. National Asian American Coalition et al. v. Brown et al., 80001784 (Sacramento Super. Ct., filed March 14, 2014).
Under the so-called Consent Judgment with California, 90 percent of money secured by Attorney General Kamala Harris, amounting to the disputed $369 million, was intended for a special fund to monitor lending services, and to provide grants for programs assisting homeowners and renters.
Instead, however, "The governor promptly - and indeed, unlawfully - diverted most of the $369 million away from the special deposit fund and into the general fund," read the Sacramento complaint.
The plaintiffs include the National Asian American Coalition, the COR Community Development Corp., and the National Hispanic Christian Leadership Conference.
New York-based lawyer Neil M. Barofsky is the lead attorney for the plaintiffs. Aaron J. Lewis, a Daly City-based lawyer who represents one of the nonprofits, said they waited to bring the lawsuit until after the state was out of dire financial straits.
A report released in November by the state Legislative Analyst's Office projected a $3.2 billion operating surplus for the 2014-15 fiscal year.
"Now there's really no excuse to not get this aid to homeowners and to the associations that are trying to help them," Lewis said.
In an emailed statement, state Department of Finance Director H.D. Palmer dismissed the lawsuit.
"While we're in the process of reviewing the complaint, we're confident that our budget actions are legally sound," he said.
Only 27 states committed all of their settlement money to housing assistance, according to a 2012 New York Times story. Texas, Missouri, Indiana and Virginia found alternative uses for their settlements, including paying off energy bills and supporting higher education.
Palmer said California used the biggest chunk of its settlement - nearly $300 million - to pay off bonds issued by low-income housing programs.
Harris, who has been touted for securing the largest piece of the settlement for California, could not be reached for comment Monday. In a 2012 prepared statement, she said the money should be used for its rightful purpose.
"While the state is undeniably facing a difficult budget gap, these funds should be used to help Californians stay in their homes." href="mailto:
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Saul Sugarman
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