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Horne lawyer: Client was entitled to surrender funds

Horne lawyer: Client was entitled to surrender funds

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PHOENIX -- The lawyer for Attorney General Tom Horne said Monday his client was legally entitled to surrender $50 million of the money the state got from a nationwide mortgage settlement.

Attorney Tim Berg acknowledged that Horne signed a federal consent decree which put $97 million into a special fund designed to be used to deal with the effects of the mortgage crisis. And he told the state Court of Appeals that Horne had sole authority over those dollars so long as they fell within the "very, very broad realm" of permitted uses.

"And what the attorney general has decided to do in the exercise of that power is transfer $50 million to the general fund," Berg told the judges. "Whether you view that as repaying the state for its costs caused by the foreclosure crisis or ameliorating the effect of the foreclosure crisis, it is within the attorney general's discretion to do that."

That contention brought derision from attorney Tim Hogan of the Arizona Center for Law in the Public Interest. He was hired by housing advocacy groups to represent those in danger of foreclosure, people who Hogan said need the money the Legislature took.

Hogan acknowledged that Horne did agree to transfer the funds -- eventually. But he said that came only after lawmakers made it clear that Horne had two choices: Give the money voluntarily or have them take $50 million from somewhere else in his budget.

"The problem is that the attorney general's 'discretion' has been coerced," Hogan told the three-judge panel.

"You can't really call that the exercise of discretion when you're being ordered to transfer something, and then you have the same bright idea that, you know what, that sounds like a pretty good idea."

Peter Gentala, representing the Republican majority in the House and Senate which demanded the funds, took an even stronger position.

He told the court that lawmakers were legally entitled to take the money and decide how best to use it. More to the point, Gentala said that decision was political, meaning the courts have no right to intercede or second guess.

Hogan is most immediately asking the appellate judges to block Horne from transferring the $50 million to the state's general fund.

But he is eventually looking for some ruling that says that money can be spent only on services that benefit homeowners, including those in danger of foreclosure.

A trial judge previously ruled against him. But Hogan said every day of delay in restricting the use of those funds to specific purposes is another day that homeowners in need of help will not get it.

At the heart of the 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 that is for direct aid to homeowners, both 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 over 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.

"But, of course, that intent has absolutely no effect here," Hogan said. And he said this $50 million is having no more impact on the financial problems caused to the state by the foreclosure crisis than sales or income tax funds.

Hogan is relying on the fact 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. He said that makes both the legislation taking the $50 million an illegal use of the funds, even if Horne ultimately agreed to go along.

But Berg told the court that even assuming Hogan is correct, a point he is not conceding, then Hogan should be suing Horne in the federal court that approved the consent decree for failing to live up to its terms.

The appellate panel promised a quick answer to Hogan's lawsuit.

All sides have agreed not to transfer the money before Dec. 31. But after that, the timing is solely up to Horne: The legislative mandate requires him to hand over the cash before June 30.


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