Appeal court says state misappropriated housing funds

Advocacy groups for minority and low-income homeowners defeated Gov. Jerry Brown and the state Legislature in court Tuesday when a 3rd Appellate District panel reversed a superior court ruling and essentially ordered them to return $331 million in funding he had appropriated for the state's general fund.

The money originated from a 49-state settlement with the country's five largest mortgage servicers and was intended specifically to help minority and low-income homeowners. The settlement gave $20 billion directly to homeowners who were affected by the subprime mortgage crisis in 2007 and an additional $2.5 billion payment to the states.

California received $410 million and former Attorney General Kamala Harris issued instructions on how the funds could be used. National Asian American Coalition et al. v. Brown et al., 2018 DJDAR 6755 (Cal. App. 3rd Dist. July 10, 2018).

Sacramento County Superior Court Judge Timothy M. Frawley ruled that more than $331 million of the funds had been misappropriated but questioned whether he had the authority to order the Legislature to move the money back immediately. He wrote that the state must restore the funds as soon as is reasonable.

The plaintiffs are the National Asian American Coalition, COR Community Development Corporation and the National Hispanic Christian Leadership Conference.

Justice Andrea Lynn Hoch wrote in the appellate decision that Frawley didn't go far enough and ordered the lower court to issue a writ of mandate directing the funds to be returned immediately.

Hoch agreed the vast majority of the funds were expended on programs "that support public protection, consumer fraud enforcement and litigation, and housing related programs" but added that just choosing topics that are related to the subject matter was not a sufficiently targeted use of the funds.

"Defendants' reading of the statute would effectively defeat the purpose of creating a special deposit fund to house the money," she wrote.

Neil M. Barofsky, a partner with Jenner & Block LLP who argued on behalf of the plaintiffs, didn't respond to a request for comment.

Attorney General Xavier Becerra's office could not be reached for comment.