AG Horne to defend state's raiding of mortgage-relief funds

2012-05-09T00:00:00Z AG Horne to defend state's raiding of mortgage-relief fundsBy Howard Fischer Capitol Media Services Arizona Daily Star

PHOENIX — Attorney General Tom Horne said Tuesday he will defend the decision to raid a housing fund settlement even though he thinks the move by lawmakers and the governor is a bad idea.

Horne said “it doesn't matter” what he believes about the provision in the newly enacted budget to take $50 million out of an account that attorney Tim Hogan said is clearly meant to help those who have been the victims of mortgage fraud.

Horne said once the Republican-controlled Legislature put it in the spending plan and once Gov. Jan Brewer signed the measure, he will comply with their wishes.

"These are the two bodies elected by the people to handle the state budget,'' he said.

But Hogan, an attorney for the Center for Law in the Public Interest, said Horne is legally off base. So he wants the question resolved in court — and soon: Absent an injunction, Horne said he will give the cash to the state treasurer when the new fiscal year which begins July 1.

The funds are part of a $26 billion pact announced in February with five major lenders to settle claims by Arizona and other states that they acted improperly and illegally in dealing with homeowners who sought mortgage relief. Arizona's share was $1.6 billion, with virtually all of the money for borrowers themselves.

That includes $1.3 billion in direct help to those who are "underwater'' with their mortgages, owing more than the property is worth. There also is $110 million in payments for those who already lost their homes to lender misconduct and $85 million for interest rate reductions.

And then there is $97.7 million going directly to the Attorney General's Office.

The language of Arizona’s part of the settlement that Horne signed say the funds shall be used to avoid preventable foreclosures, ameliorate the effects of the foreclosure crisis and aid in prosecuting financial fraud.

But lawmakers cited language which says the money also can be used "to compensate the state for costs resulting from the alleged unlawful conduct of the defendants.'' They said the financial upheaval caused by the foreclosures contributed to the state's financial problems.

Horne admitted he lobbied against the language in the budget ordering him to turn over $50 million of that.

"From a policy standpoint, I disagreed and I let them know,'' he said. But the attorney general said he does not intend to fight it -- and, in fact, will oppose any effort by Hogan to block transfer of the funds.

The attorney general said he has no real options, what with the budget language having been approved not only by lawmakers but by the governor, too.

"It would be suicidal for me to get into a war with both the Legislature and the governor over a matter that is clearly constitutionally within their area of responsibility, namely the budget,'' Horne said. "So I'm going to voluntarily comply even if I disagree with the policy.''

Hogan, however, said Horne doesn't get to make that decision to just go along with what lawmakers and Brewer want. He said the money was given to Horne for specific purposes.

"This is a trust,'' Hogan said. "He's got duties as a trustee to spend the money and direct its use consistent with the permissible purposes in the consent decree.''

In this case, Hogan said he and Ellen Katz of the Arizona Center for Disability Law were contacted by groups like the Arizona Housing Alliance, made up of organizations that help those navigate foreclosure problems -- and who might qualify for some of that $97.7 million to provide that help. He is specifically representing Joseph Morones who Hogan said is in need of help dealing with a mortgage lender.

Hogan said it appears lawmakers attempted to craft the budget provision to get around the fact they cannot legally take the money which goes to Horne to use for specified purposes: Instead of having the money automatically transferred out of Horne's office, it instead directs him, as a state employee, to transfer the funds.

But Hogan said the language is legally irrelevant.

"They're doing indirectly what they can't do directly,'' he said.

The funds are coming from five large mortgage companies: Bank of America, Wells Fargo, JPMorgan Chase, Citigroup and Ally Financial, formerly known as GMAC.

Arizona is getting the third largest chunk of the $26 billion settlement, after only California and Florida.

Horne said that is far better than any deal on a population basis, due to how hard hit Arizona was in the mortgage crisis.

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