Lawsuit claims Gov. Brown unlawfully diverted $369M in distressed homeowners’ relief fund

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LOS ANGELES – On Friday morning (March 14), major organizations in the Black, Latino, and Asian American communities filed a petition demanding California Governor Edmund G. Brown to return up to $350 million of the $369 million that were allegedly “unlawfully” diverted from California’s share of the 2012 National Mortgage Settlement, secured by California Attorney General Kamala Harris.

According to the Petition for Writ of Mandate and Complaint for Declaratory and Injunctive Relief, which was filed at the Sacramento Superior Court (Case Number 34-2014-80001784), the $369 million is part of approximately $410 million, which the State of California (through Attorney General Harris) obtained “from the roughly $3.4 billion in direct payments to the federal and state governments.”

“According to the express settlement terms, 10 percent of this amount (roughly $41 million) was denoted a civil penalty and allocated to the State’s Unfair Competition Law Fund, while the remaining 90 percent (roughly $369 million) was placed in a Special Deposit Fund to benefit the State’s borrowers and organizations that support them,” the petition elaborated further.

“This Petition asks the Court to compel the Governor and other California officials to obey the law,” the petitioners said.

The “Petitioners” include the National Asian American Coalition (NAAC), a HUD-approved Asian American homeownership advocacy group; COR Community Development Corporation, a corporation affiliated with the Christ Our Redeemer African Methodist Episcopal (COR AME) — the largest Black church in Orange County; and the National Hispanic Christian Leadership Conference (NHCLC), which represents 40,000 Latino evangelical churches across the US.

They are represented by Attorneys Rick Richmond and Neil M. Barofsky of Jenner & Block LLP, and other lawyers from the respective organizations.

Barofsky gained national prominence when he became Treasury Department Inspector General (2008-2011) and policed the $700-billion Troubled Asset Relief Program (TARP) — a program which bailed out the crumbling banking industry, according to Sacramento Bee.

In a press conference, Barofsky said that struggling homeowners suffered the most from the diversion of the funds.

“The frontline victims of the crisis, struggling homeowners, received mostly unfulfilled promises they would get the help they desperately needed,” Barofsky said in a Sacramento Bee report.

NAAC General Counsel Robert Gnaizda (who also represents the COR AME church in its advocacy efforts) said that the three plaintiff groups represent the largest Black, Latino, and Asian groups in the country.

‘Unlawful diversion’

In 2012, after Attorney General Harris secured a settlement with five of the nation’s largest mortgage servicers, a Special Deposit Fund was created as a repository of the $369-million in settlement proceeds.

The petitioners said that this fund was intended to give California homeowners the necessary counseling and assistance, to save their homes from foreclosure, among other purposes.

However the petitioners alleged that Gov. Brown siphoned most of the money from the Special Deposit Fund, and “unlawfully” funneled them into the General Fund.

“The Governor promptly — and, indeed, unlawfully — diverted most of the $369 million away from the Special Deposit Fund and into the General Fund, with no apparent intention of reconstituting the special fund unless the Court compels him to do so,” the petition said.

The petition went on to claim that “there is no question” that the money was diverted into California’s General Fund to pay off the State’s general debts, and that Gov. Brown has projected a large budget surplus for 2014 and beyond, but has given no indication in his budget that he intends to replenish the diverted Special Deposit Fund, “now or ever.”

“This Court should therefore compel the Governor and the other named Respondents to follow the law and to allow California homeowners to reap the benefits of the settlement secured for them by their Attorney General,” the petition said.

The petition went on to claim that Gov. Brown “had no legal right” to divert the funds in the first place and, even if he did, he has the” statutory duty to replenish them in this year of surplus.”

Aside from Gov. Brown, other respondents to the petition include California Director of Finance Michael Cohen, and California Controller John Chiang.

‘We will prevail’

Also on Friday, shortly after the petition was filed in court, the petitioners held a telephone press conference.

Gnaizda said that Brown’s move to divert the Special Deposit Funds to the General Fund was “illegal and unconstitutional.”

“In 2012, Kamala Harris made it clear that the Governor had no legal right to take the money, and she protested publicly. And it is our expectation that the Governor will pay attention to her comments immediately after this suit,” Gnaizda said.

Gnaizda went on to say that “there is no question” that they will prevail in their quest to recover the $350 million.

He said that the ministers from COR AME and NHCLC are both going to invite Gov. Brown to engage in an early settlement, hopefully by Palm Sunday (April 13).

“They will then invite the Governor to speak at the churches, and applaud him for solving the budget crisis and for [an] early settlement that will help 2 million California homeowners who are in distress,” Gnaizda said.

At the press conference, NAAC CEO and President Faith Bautista said that her message has been the same for the last six years.

“Homeowners need help,” Bautista said.

“It will be my message for the next two or three years because 2 million homeowners are still facing foreclosures,” she added.

According to Bautista, “nothing has changed.”

She pointed out that even with six (6) offices throughout California, the NAAC has only been able to help 9,000 homeowners out of a potential total of 30,000 families.

“But due to lack of resources and funding and help from the government, from everybody, it’s impossible and hard to help homeowners,” she said.

Bautista said that what they want is for every single homeowner (whether facing foreclosure, about to face foreclosure, or have been foreclosed on) to get the assistance they need, so that they can become more financially knowledgeable. This way, they can properly navigate their way through their home mortgage hurdles.

She went on to say that what they want is “for all the propaganda that we’ve been hearing from President Obama, from the Governor, from the Banks, from all the politicians — for it to work.”

“Get out there and help every single one [who’s] crying for help, [who] are losing sleep, [who] are continuously [facing] health problems because of foreclosures,” Bautista said.

The NAAC president said that homeowners under distress are losing more than just their homes.

Bautista said that they are losing their family’s integrity, and the “vision that America is a place where an immigrant can own a home.”

Gov. Brown’s response

Asian Journal reached out to Gov. Brown’s office and received this response from California Department of Finance Deputy Director for External Affairs H.D. Palmer.

“While we haven’t yet seen the complaint, we’re confident that our budget actions are legally sound,” Palmer said.

(LA Weekend March 15-18, 2014 Sec A pg.1)

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