June 12, 2015

Jenner & Block won a victory on behalf of three nonprofit housing groups when the Superior Court of California in Sacramento ruled that Governor Jerry Brown unlawfully diverted more than $331 million from a mortgage settlement fund that was established to help millions of financially distressed homeowners to instead address budget shortfalls. 

The California Legislature created the National Mortgage Special Deposit Fund (NMSDF) to hold funds the State received from the 2012 National Mortgage Settlement negotiated by Attorney General Kamala Harris.  But soon after California received these funds, Governor Brown — facing a multi-billion-dollar budget deficit — diverted the money to plug holes in the State’s budget.

In 2014, three minority groups that assist homeowners — the National Asian American Coalition, COR Community Development Corporation, and the National Hispanic Christian Leadership Conference — filed a lawsuit challenging Governor Brown’s fund diversions.  On June 12, 2015, the Court ruled that it agreed with these groups’ position.  The Court declared “that $331,044,084 in offsets were unlawfully diverted from the NMSDF” and that California “is obligated to restore/return those funds to the NMSDF.”  It also enjoined California “to restore/return those funds to the NMSDF as soon as there is a sufficient appropriation ‘reasonably’ and ‘generally’ available for such purpose.”  The Court ended its ruling by calling on the Legislature and the Governor to “take whatever steps are necessary and appropriate to meet this obligation.”

Faith Bautista, president of the National Asian American Coalition, praised the Court’s decision.  “The Court understood that Attorney General Harris and the Legislature intended this money to be used to assist California’s thousands of struggling homeowners.”  Ms. Bautista also called on the Governor and Legislature to act quickly to restore this money to the NMSDF.  “Every day that the Governor and Legislature wait to act is another day that Californians will lose their homes.  California homeowners have waited too long for meaningful relief.  Please do not ask them to wait any longer.” 

 In May, the Governor issued the May Revision to his January budget, which reflected a $6.7 billion increase in revenues this year.  According to numerous sources, the State has a steadily growing budget surplus, which the non-partisan Legislative Analyst’s Office estimates will reach $9.6 billion by 2018.  Ms. Bautista has called on the Governor and Legislature to use this surplus to comply with the Court’s order.  “According to the Governor’s most recent reports, funds are available to restore the NMSDF.  We pray that he and the Legislature will take immediate actions to comply with the Court’s order and restore this fund.”

“We are grateful for the judge’s decision and look forward to the Governor putting the $331 million back where it belongs so that still struggling California homeowners can get the counseling and assistance they so desperately need,” said Partner Neil Barofsky.

In addition to Mr. Barofsky, the Jenner & Block team includes Partners Rick Richmond and Patrick J. Trostle and Associates L. David Russell, Jeffrey A. Atteberry and Ava U. McAlpin. The case was previously reported by The New York Times, The Wall Street Journal, the Los Angeles Times and Law360, among others.