An attorney for housing advocacy groups asked a judge Wednesday to void a decision by lawmakers to take $50 million from the cash Arizona got as its share of a nationwide mortgage fraud settlement.
Tim Hogan said the settlement Attorney General Tom Horne signed on behalf of Arizona put the dollars into a special trust fund. Hogan told Maricopa County Superior Court Judge Mark Brain that made the cash off limits to legislators who want it to balance the budget.
But Horne, while publicly objecting to the seizure at the time, eventually gave in. And Doug Northup, who is representing Horne, told Brain that there was nothing illegal about that.
The fight is a direct outgrowth of a nationwide $26 billion deal with five lenders. Arizona's share is about $1.6 billion.
Most of that is earmarked in direct aid for homeowners to help them avoid foreclosure. There also are funds to compensate those who were improperly forced out of their homes.
This fight is over the $97 million specifically for the state.
Hogan pointed out the settlement spells out how those dollars can be used, including "to avoid preventable foreclosures'' and to help prevent and prosecute financial fraud. The paperwork goes on to list examples, like paying for housing counselors, legal assistance and foreclosure assistance hotlines.
Horne initially fought the move by the Republican-controlled Legislature to divert $50 million of that to balance the budget, calling it "bad public policy.''
But he eventually said -- and Northup argued -- the move is not illegal, saying the agreement has other permitted uses for the cash.
Brain told Hogan the language in the agreement is "wonderfully broad,'' pointing out it even includes a reference that money can be used to compensate the state for its losses. And legislators, in justifying the move, said the state budget suffered greatly because of the whole mortgage foreclosure mess which sent property values into a tailspin and reduced state tax collections.
Northup added that the agreement says the permitted uses "include, but are not limited to'' the specified items.
Hogan, however, said all that misses the point. He said once Horne agreed to create a trust fund, he has to spend it to benefit those who were hurt.
"Either this language means something or it doesn't,'' he told Brain. "We ordinarily believe that words have meaning.''
Brain also questioned Peter Gentala, an attorney for the Republican-controlled Legislature, who also is defending the transfer. The judge pointed out Horne's very public statements objecting to the fund raid before he finally aceded.
"You really don't want me to believe Mr. Horne was a willing participant in this,'' Brain said.
Gentala responded that whatever the rhetoric, Horne has discretion in how to spend the money and he ultimately agreed to provide $50 million to the state.
"That sideshow ... is totally irreleant,'' Gentala said.
Brain said he will rule in several weeks.
Officially, Hogan brought the lawsuit in the names of two people who would benefit by the state having more money to help homeowners avoid foreclosure. The lawsuit said both are currently "at risk'' of losing their homes.
But Hogan, asked to sue by housing advocacy groups, attached legal papers cite broader implications of losing the cash.
In an affidavit, Valerie Iverson, executive director of the Arizona Housing Alliance, said $97 million "could help tens of thousands of distressed homeowners'' through the kinds of counseling, legal help, education and mediation services that were envisioned in setting up the trust fund.
"Without this funding most distressed homeowners will never know about the resources that are available to them and that they are entitled to receive,'' she wrote.
"Without this funding, distressed homeowners will have to go up against the five largest banks and other institutions and their bureaucracies on their own, without the help and expertise of housing counselors, mediators and lawyers,'' Iverson continued. "Without such information and assistance, we have seen large numbers of foreclosures that could have been avoided.''