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Housing group preparing lawsuit over mortgage sweep

A housing advocacy organization is planning to sue the state over a budget sweep of $50 million intended to help alleviate the effects of the foreclosure crisis.

Attorney Tim Hogan, of the Arizona Center for Law in the Public Interest, said he will represent the Arizona Housing Alliance in a suit trying to block the sweep. The money is from a $97.7 million pool the state received as part of a multistate settlement with several banks.

Hogan said the suit will allege that the sweep is illegal for two reasons.

One, he argued, is that it would violate the separation of powers between the Legislature and the Attorney General’s Office. Under the terms of the settlement, the money goes into a court-ordered trust fund that is controlled by Attorney General Tom Horne, and a budget bill passed by the Legislature orders Horne to transfer the money to the state’s general fund.

Hogan said the Legislature cannot directly appropriate the money, so it instead passed a bill ordering Horne to transfer the money to the general fund.

“They’re trying to be clever here and say, okay, since we can’t appropriate it, we’ll tell Horne to give it to us,” Hogan said. “They’re trying to do, indirectly, what I think they know they are prohibited from doing directly.”

Hogan said it would also be unlawful for Horne to transfer the money because the settlement stipulates that it can only be used for specific purposes, such as avoiding preventable foreclosures, ameliorating the effects the foreclosure crisis, strengthening law enforcement efforts against financial fraud or deceptive acts in the housing market, or compensating the state “for costs resulting from the alleged unlawful conduct of the defendants.”

“Were he to transfer the money it would violate his duty as trustee of this court-ordered trust fund,” Hogan said.

Republican lawmakers and Gov. Jan Brewer say they are fully within their rights to appropriate the mortgage settlement money.

“I feel very comfortable with it,” Brewer said. “I think that we have a pretty good legal reason to stand on that, and I don’t think that we’ve done anything wrong.”

Rep. John Kavanagh, who chairs the House Appropriations Committee, said it was a “mistake” that the federal consent judgment gave Horne control of the money.

Language in the budget says the money will be used in ways that are consistent with the settlement, such as funding the Department of Real Estate, Department of Insurance and the Attorney General’s Office, but does not say whether the money will be used for new funding or simply to backfill funding that is diverted elsewhere in the budget.

Hogan said he doubted that the money would be used for new funding for housing and foreclosure-related issues.

“This notion that you can trace general fund money is crazy. That’s just after-the-fact rationalization,” he said.

The suit will be filed in Maricopa County Superior Court. Hogan said he isn’t sure exactly when he will file the lawsuit.

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