Judge Upholds Taking Foreclosure Funds for Budget

Oct 10, 2012

A judge today upheld the decision by lawmakers to take $50 million out of the state's share of a mortgage fraud settlement case.

The nationwide deal announced earlier this year required five major lenders to pay $26 billion. Arizona's share of that was $1.6 billion, with most of that earmarked for direct help to both those who had lost their homes or were in danger of foreclosure. But it also included $97 million directly for the state to be placed into a court ordered trust fund. The deal signed by Attorney General Tom Horne says those dollars are to help avoid preventable foreclosures with things like counselors and legal assistance. But lawmakers took $50 million to balance the state's books, arguing the state itself suffered financially from the mortgage foreclosure mess. Attorney Tim Hogan sued, saying that wasn't part of the purpose of the trust fund. But Judge Mark Brain said it really wasn't a trust in the legal sense. And he said that lets lawmakers to do what they please with the cash. Hogan said that makes no sense.

"When the attorney general establishes a court-ordered trust fund, you usually think he knows what he's doing," said Hogan. "I don't think it's a loose use of the term."

Hogan vowed an appeal. He said even if there was not a formal trust, Horne signed a deal -- approved by a federal judge -- spelling out how he would spend the money. And Hogan said that could make the state guilty of breach of contract.