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Church, housing groups sue Gov. Brown over mortgage settlement money

A collection of religious groups and homeownership advocates sued California Gov. Jerry Brown on Friday demanding that he return about $350 million from the 2012 national mortgage settlement that was used to plug holes in the 2013 state budget.

The money — part of California’s share of a $25-billion settlement negotiated with five major loan servicers two years ago — was pledged to help distressed homeowners and to fund consumer protection programs. But, facing a $16-billion state budget deficit, Brown diverted the money to pay interest on low-income housing bonds.

Now, with California projecting a budget surplus of more than $4 billion, the housing advocates would like that money funneled back into mortgage relief and counseling programs.

National mortgage settlement: Large banks not meeting terms

“Our goal is a very simple goal,” said Robert Gnaizda, general counsel for the National Asian American Coalition, one of the plaintiffs in the suit. “We want an early settlement that will help 2 million California homeowners who are still in distress.”

In a statement after the suit was filed Friday, the Brown's office gave no signal that it would change course.

"While we haven't yet seen the complaint, we're confident that our budget actions are legally sound," said H.D. Palmer, deputy director for external affairs for the California Department of Finance.

The suit puts Atty. Gen. Kamala Harris in a tricky spot. She was instrumental in negotiating the mortgage settlement and criticized Brown's move to divert the counseling funds at the time. But she's also the state's chief lawyer and will be charged with defending the suit. A spokesman for Harris declined to comment Friday.

Gnaizda said the lawsuit, filed Friday morning in Sacramento, was a last resort. His group sent letters to Brown in November and again in December asking him to release the funds. They also called several times with no response, he said.

“I’m reluctant to ever go against a good governor without giving him lots of opportunities,” Gnaizda said.

His group, along with the Christ Our Redeemer Community Development Corp. and the National Hispanic Christian Leadership Conference are being represented in the case by Neil Barofksy, former special inspector general at the U.S. Treasury Department. He’s now an attorney at Jenner & Block in Los Angeles, which is handling the case pro bono.

Barofksy said more still needs to be done to help “the front-line victims of the financial crisis: struggling homeowners.”

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tim.logan@latimes.com

Twitter: @bytimlogan

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