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 the state siphoned off to help deal with its budget crisis.
A Sacramento County judge found 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. They would have used the money for things such as helping get loan modifications, restore credit scores, buy new homes or pay 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, 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 that for which it was intended.
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 Californiahomeowners 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. Brown's finance department did not immediately respond to a question about how much taxpayers have paid the firm to date.