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California Owes Troubled|Homeowners $331 Million

SACRAMENTO (CN) - A California judge ruled that the state is obligated to return $331 million it took from a federal bailout fund for homebuyers facing foreclosure, but said he cannot order the state to return the money immediately.

The National Asian American Coalition et al. sued the state in March 2014, claiming Gov. Jerry Brown diverted more than $331 million from the National Mortgage Special Deposit Fund to help plug holes in California's 2012 budget.

The money came from the $25 billion nationwide settlement with major banks the federal government bailed out during the financial crisis. Of that, $2.5 billion was earmarked for assisting troubled homebuyers - 800,000 to 1 million of them in California.

Superior Court Judge Timothy Frawley on Friday agreed that the state had wrongfully diverted the money.

But though the plaintiffs' arguments were "well taken," Frawley ruled, his court "is unable, under controlling case law, to issue a peremptory writ of mandate compelling respondents to restore/return the unlawfully diverted funds."

But the judge said the state is obligated to restore money as quickly as possible, and to do "whatever is necessary and appropriate to meet this obligation."

The settlement involved Bank of America, Citigroup, JP Morgan Chase, Wells Fargo and Ally Financial.

California "borrowed" money earmarked for troubled homeowners. Now, the judge said, it must pay it back.

The plaintiffs sought writ of mandate ordering the state to return the money from whence it came.

The state said it can't do that, because that money has been spent, and the court cannot order the Legislature to appropriate more.

Citing those arguments and others, Frawley wrote: "This is not the first time that this court has struggled with this complex problem, and it is not likely to be the last."

Because of the separation of powers, Frawley wrote, he cannot order the state to repay the money: "Rather, the court shall declare that $331,044,084 in offsets were unlawfully diverted from the NMSDF [National Mortgage Special Deposit Fund] to the General Fund; declare that the State is obligated to restore/refund those funds to the NMSDF; and enjoin the State to restore/return those funds to the NMSDF as soon as there is a sufficient appropriation 'reasonably' and 'generally' available for such purpose."

He continued: "The court shall assume that the Legislature and Respondents will take whatever steps are necessary and appropriate to meet this obligation."

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