Nonprofits sue California for diversion of mortgage settlement funds

Three nonprofit homeowner counseling groups have filed a lawsuit against California Gov. Jerry Brown, demanding the state replenish $369 million that had been slated to help troubled borrowers but was instead used to pay down debt issued by low-income housing authorities, the New York Times reported.

California received the funds from a $25 billion national mortgage settlement two years ago, at a time when the state was struggling financially. But state officials project a $4.2 billion surplus this year, and foreclosure prevention groups say the state had no legal right to divert the money.

H. D. Palmer, an official in the California Department of Finance, told the New York Times, “While we haven’t yet seen the complaint, we’re confident that our budget actions are legally sound.”

An October 2012 report found that half of the 49 states that participated in the settlement have used about $1 billion in homeowner counseling funds for other purposes.

Source: nytimes.com

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