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Arizona homeowners may lose half of mortgage settlement money

Readers of our Mesa, Arizona, Bankruptcy Law Blog may remember last month's post about a new program to assist Arizona homeowners. That post outlined details of the government's mortgage settlement with five of the country's biggest banks. Arizona was set to receive $98 million from the settlement, which was intended to help homeowners who are struggling with threats of foreclosure.

Homeowners welcomed the news, as piling debt, the economic climate and the housing market have made it difficult for many to make mortgage payments and keep their houses.

However, their joy may be short-lived as it is possible that half of the settlement money may be added to Arizona's general fund rather than directly support homeowners. Once it is in its fund, the state can use the money however it sees fit.

The state attorney general is the trustee of the settlement money and will oversee its disbursement. An attorney and executive director of a nonprofit law firm focused on public interests has filed a suit against the attorney general to stop the $50 million transfer, claiming the state acted unconstitutionally in passing a bill allowing the money transfer.

The attorney general said he was opposed to the bill himself, but claimed it was useless to fight it, as the governor and the legislature control the budget and are united in their decision. Instead he has asked homeowners to focus on the larger picture--overall, Arizona received $1.6 billion to assist homeowners, of which this part of settlement is only a fraction. However, the lawsuit argues that every dollar counts and Arizona homeowners need all the assistance promised to them.

What do you think? Does the state have the right to keep half of the mortgage settlement money to boost its own bottom line?

Source:, "Mortgage settlement money diverted to boost state budget," Meredith Yeomans, May 24, 2012