Ariz. SC OKs legislature's seizure of mortgage settlement funds for budget

By Jessica M. Karmasek | Sep 26, 2013

TUCSON, Ariz. (Legal Newsline) -- The Arizona Supreme Court said this week that the state legislature wasn't wrong to take $50 million from a court-ordered trust fund set up to help residents hurt by the foreclosure crisis.

In May 2012, the legislature passed its budget bill for fiscal year 2012. The budget bill, signed by Gov. Jan Brewer, directed Attorney General Tom Horne to transfer the $50 million -- a sizeable chunk of the state's more than $1 billion share of the nationwide mortgage settlement -- to the state's general fund.

Soon after, the Arizona Center for Law in the Public Interest, along with the Morris Institute of Justice, filed a lawsuit challenging the legislature's sweep.

The lawsuit sought to stop that transfer on several grounds, including breach of trust.

A lower court issued an order dismissing the case.

The plaintiffs then filed a petition for special action with the state Court of Appeals.

In March, the court accepted jurisdiction but denied the request for relief.

The court held that the settlement funds belonged to the state and that the attorney general could not "unilaterally" restrict the use of the funds.

However, the court did not address the plaintiffs' constitutional argument that the fund sweep could not lawfully be included in the budget bill.

It also rejected their separation of powers argument because Horne and legislature were in agreement about the transfer of the funds.

The plaintiffs then sought Supreme Court review.

According to the Arizona Daily Star, the state's high court upheld the lower court rulings Tuesday.

Without any comment, the justices ruled that nothing in the agreement required Horne to spend the money only on homeowner services and that the transfer can now proceed.

Tim Hogan, an attorney for the Arizona Center for Law in the Public Interest, said this week he was disappointed with the court's ruling.

"There's still a ton of people that could have benefited from this money that rightfully should have been spent on people with foreclosure problems instead of going to the general fund," he told the newspaper.

From Legal Newsline: Reach Jessica Karmasek by email at

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