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Nonprofits Sue California Governor Over Alleged Misused National Servicing Settlement Funds

Three nonprofit consumer groups filed suit against California Governor Jerry Brown at the end of last week, alleging the governor misdirected funds from the landmark $25 billion national servicing settlement with the nation’s largest banks.

California received $410 million in the settlement on behalf of California homeowners, $369 million of which was earmarked for counseling and other homeowner assistance but allegedly wound of in the state’s general fund. The groups say Brown redirected the funds into the general state fund when the state was struggling with a deficit.

Now that the state is anticipating a surplus, the groups say it’s time for Brown to return the money to its intended use and help save California homeowners faced with foreclosure.

The $369 million was "specifically intended to give California homeowners the necessary counseling and assistance to save their homes from foreclosure, among other similar purposes. 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," stated the National Asian American Coalition (NAAC), COR Community Development Corporation, and the National Hispanic Christian Leadership Conference in their lawsuit filed in a Sacramento Superior Court Friday.

Furthermore, the groups assert, "[T]here is no question that the Governor has projected a large budgetary surplus for 2014 and beyond, but has given no indication in his budget that he intends to replenish the diverted funds, now or ever."

As such, the groups are requesting the court obligate the governor to return the funds to their intended purpose.

Alongside the lawsuit, two other nonprofits sent letters to Gov. Brown requesting he comply with the request of the lawsuit. HomeFree-USA, a minority-founded HUD intermediary, and Operation HOPE, a California-based nonprofit housing counseling group, urged the governor to return the $369 million to California homeowners.

Both groups offered to sit down with the governor to help work out a solution to the conflict outside of court.

"Although we did not take any position publicly regarding your position to take the money from the settlement because of the budget deficit, we were quite concerned that a community that had no powerful representatives would be deprived of a very substantial sum of money that would adversely affect millions of California homeowners in distress and further weaken homeowners in distress as they faced foreclosures and the need for loan modifications and other graceful exit strategies," Operation HOPE stated in its letter.

The letter went on to mention the state's multibillion-dollar budget surplus this year.

Gov. Brown could not be reached for comment.

About Author: Krista Franks Brock

Krista Franks Brock is a professional writer and editor who has covered the mortgage banking and default servicing sectors since 2011. Previously, she served as managing editor of DS News and Southern Distinction, a regional lifestyle publication. Her work has appeared in a variety of print and online publications, including Consumers Digest, Dallas Style and Design, DS News and DSNews.com, MReport and theMReport.com. She holds degrees in journalism and art from the University of Georgia.

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