Some states may have to return misused housing money

06/25/2015

Some states may have to return misused housing money

LOS ANGELES – June 22, 2015 – A court has ruled that the state of California must return the $331 million earmarked to help troubled homeowners that lawmakers used instead to help repair the state's budget.

State court judge Timothy M. Frawley ruled that state lawmakers improperly appropriated a portion of the money California received in 2012 as part of a $25 billion nationwide settlement with the nation's largest banks over mortgage servicing improprieties. The lawsuit had been filed by three nonprofit groups who offer counseling to homeowners, who first charged that the state had misappropriated funds away from helping homeowners to avoid foreclosure through counseling and other educational services.

Instead, they charged, the state allocated the funds for other purposes from 2012 to 2014, such as retiring debt issued by low-income housing authorities.

California's share of the nationwide settlement was $350 million. Judge Frawley ruled that the government had misused $331 million of that settlement by allocating it to other purposes than what was intended. He ordered the state to return the amount to the special homeowner fund "as soon as there is sufficient appropriation 'reasonably' and 'generally' available for such purpose."

Similar lawsuits against states misappropriating funds from the national mortgage settlement are also likely, says Robert Gnaizda, general counsel to the National Asian American Coalition – one of the three groups that served as a plaintiff on the lawsuit, along with the COR Community Development Corp. and the National Hispanic Christian Leadership Conference.

"We've identified about a dozen states where it might be appropriate to take action," Gnaizda told The New York Times. "We decided not to go forward with other actions until this case was decided."

Source: "California Has to Repay $331 Million to Homeowners Fund, Court Rules," The New York Times (June 15, 2015)

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