State officials agreed Tuesday to delay the transfer of $50 million of disputed mortgage settlement funds, at least for the time being.
Assistant Attorney General David Weinzweig made the offer during a hearing where challengers were hoping to get a court order blocking the move while its legality is being decided by Maricopa County Superior Court Judge Mark Brain. Attorney Tim Hogan of the Arizona Center for Law in the Public Interest, who represents those opposed to the transfer, readily agreed.
“You don’t want to rush the judge,” said Hogan, whose clients are people he believes would be helped by the funds.
“You want him to take his time on important questions like this,” Hogan said. “And so it’s reasonable to agree not to transfer the funds for a certain period of time to give the judge the opportunity to do that.”
The move sets the stage for a hearing in August on the merits of the issue.
Weinzweig told Brain he believes the transfer, ordered by state lawmakers earlier this year, is legal. Anyway, he said, Hogan’s clients have no legal standing to challenge what the Legislature did.
The fight surrounds a $26 billion nationwide settlement with five major lenders who were accused of mortgage fraud.
Arizona’s share is about $1.6 billion, with virtually all of that earmarked for direct aid to those who are “under water” on their mortgages — owing more than their property is worth — or have already been forced out of their homes.
But the deal also provided $97 million directly to the state Attorney General’s Office. The terms of that pact said the cash was supposed to help others with mortgage problems as well as investigate and prosecute fraud.
Lawmakers, however, seized on language which also said the money can be used to compensate the state for the effects of the lenders’ actions.
They said the result of the mortgage crisis was lower state revenues, giving them permission to take $50 million from the settlement to balance the budget for the fiscal year that begins July 1.
Hogan’s suit is based on his contention that the settlement terms put the entire $97 million in trust and makes Attorney General Tom Horne, who was authorized by state law to sign the deal, responsible for ensuring the cash is properly spent.
Horne urged lawmakers not to take the funds. But once the budget deal was done, he went along and took the position that, regardless of whether the cash could have been better spent elsewhere, the transfer demand is legal.
Whatever Brain rules is likely to be appealed.
The challenge was brought on behalf 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.