Attorney General Tom Horne did nothing wrong in transferring $50 million from a nationwide mortgage settlement to the state general fund to balance the budget, the Arizona Court of Appeals ruled Tuesday.

Judge Jon Thompson, writing for the court, rejected arguments by foes of the transfer that the settlement agreement Horne signed required him to put the money into a special restricted trust account. Attorney Tim Hogan said that deal required those funds to be spent only on services that benefit homeowners, including those in danger of foreclosure.

Thompson, however, said Horne had the discretion to voluntarily give the funds to the Legislature.

More to the point, the judge said the proceeds of the settlement become the property of the state. And Thompson said Horne was powerless on his own to unilaterally impose restrictions on how the cash could be spent.

Hogan said he may seek review by the Arizona Supreme Court.

At the heart of the dispute is a $26 billion nationwide settlement with five major mortgage lenders who had been accused of fraud. Arizona's share of that is $1.6 billion, most of it for direct aid to homeowners, to help reduce their mortgages and, for those who already had lost their homes, in cash compensation.

But the state itself got $97 million to compensate for its own losses, provide additional help and prevent future frauds.

Hogan said that list includes things like paying for financial counselors and legal assistance. What it does not include, he said, is simply giving the money to the Legislature with what he said was little more than a statement of legislative intent that it would be used to help fund state agencies that deal with mortgage issues.

He also pointed out that the part of the nationwide consent decree Horne signed on Arizona's behalf says the money will be placed in trust for specified uses, which Hogan contends makes the shift of $50 million of that illegal.

Thompson, however, said even if that consent decree was a restriction on the use of the funds, Horne's action was not in violation.

He said the legislation transferring the funds spells out the cash is to pay for the state real estate and insurance departments and other areas impacted by the real estate crash. That, Thompson wrote, "comports with the goals plainly outlined in the consent judgment.''

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