(Click here to read letter to Attorney General)
A group that monitors the financial services industry in Delaware is asking the U.S. Attorney General to determine if the state misused settlement funds from a Bank of America settlement over mortgage practices to plug a hole in the state budget.
The request was made by the Delaware Community Reinvestment Action Council, Inc. The group claims the General Assembly is sitting on $30 million of these funds with an eye to close a budget gap next fiscal year.
On July 27, 2015, DCRAC sent a letter to U.S. Attorney General Loretta Lynch asking for oversight of the distribution of settlement funds
States across the United States are using these funds to close the budget gaps when they should be investing in homeownership and foreclosure prevention to preserve property tax revenues for future fiscal years, Rashmi Rangan, executive director of DCRAC stated in a release.
DelawareBusinessDaily.com broke the story on concerns over use of the funds from the settlement as a budget patching tool, as well as a court decision in California that claimed a similar budget-plugging action in that state was illegal. Use of the funds was made during the waning hours of the legislative session in late June.
Two legislative leaders declined to respond to a request for comment. State officials have downplayed legal issues related to the maneuver.
DECRAC says the state is still in a foreclosure crisis. Nationwide, one in every 421 residential housing units were in foreclosure in the first quarter of 2015. In Delaware, the figure was 1 in 300. From January-March 2015, foreclosure actions were filed against 669 Delawareans. Nearly 3,000 more Delawareans are likely to be foreclosed upon this year. Delaware continues to make the top 10 states for foreclosure filings, DECRAC stated.
“The undercurrent implicit in the state redirecting settlement funds paid in reference to statutory violations to satisfy unrelated budget needs should make future litigants leery of monetary negotiations with the state when they have no assurance that compensation and damages will not be redirected by the State for other purposes.” Said James Angus, a DCRAC pro bono volunteer attorney. “It carries the patina of tribute to the state rather than compensation for violations of law.”
DECRAC claims the settlement language is very clear and unambiguous. It states, “The payment to the State of Delaware shall be used, to the maximum extent possible, for purposes of providing restitution and remediating harms to the State and its communities allegedly resulting from the unlawful conduct of [Bank of America], including efforts to address the mortgage and foreclosure crisis, financial fraud and deception, and housing related issues.”
The state was presented with numerous options for the appropriate use of these funds. The state chose to ignore all such recommendations. “When the state goes rogue who holds them accountable?” stated Rangan.
DECRAC went on to offer two examples of homeowners who worked with the group and could have used proceeds from the settlement.
