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Valley homeowners sue to stop mortgage-settlement fund diversion

PHOENIX — In February, five of the nation’s banks agreed to pay $25 billion to 49 states as part of a national mortgage settlement.

That money was meant to aid homeowners who were facing foreclosure and at risk of losing their homes during the housing crisis.

Arizona Attorney General Tom Horne said the state got $1.6 billion as part of that settlement, but some of that money might not be used for what it was intended.

The Arizona Legislature decided to divert $50 million into the state’s general fund.

That angers Valley homeowners Joseph Morones and Elvira Hernandez. Both of them could lose their homes and have filed a lawsuit to prevent the legislature from diverting that money. Tim Hogan, executive director of the Arizona Center for Law in the Public Interest, is their attorney.

“We’ve got a ton of homeowners in foreclosure, who are facing foreclosure, who are underwater, who need all kinds of help,” said Hogan.

“We are suing the Attorney General and the State Treasurer to prevent this transfer of funds that has been ordered by the legislature.”

Hogan believes the state doesn’t need the money.

“The state put $425 million into the rainy-day fund,” he said. “I guess what this means is that without the $50 million from the mortgage settlement, they would have only been able to put $375 million into the rainy-day fund. They don’t need this money.”

Horne said he agrees with the plaintiffs and tried to convince the legislature not to divert the funds.

“We had long and very intense discussions where I said that I thought they should not do it, or if they did, it should be a much lesser amount,” he said.

The legislature voted to divert the money to the general fund anyway. Horne said he has a duty as Attorney General to defend the state in court.

Horne said the legislature has a legal basis for its actions because the judgment allows states to be compensated for any money they lost because of “breaches by the banks.”

“The position of the legislature and the governor were that the mortgage crisis caused a recession that cause a reduction in Arizona revenues of 30 percent,” he said.

“That’s many billions of dollars. From their point of view, the $50 million was a small percentage of the state’s losses that it was entitled to be compensated for under the consent judgement.”

Arizona is one of 15 states that has plans to use some of the settlement funds for other purposes.