Costs mount for California’s improper diversion of foreclosure aid

California paid more than $1.4 million to cover the legal costs of community groups that sued the state for diverting hundreds of millions of dollars meant to help homeowners hit by foreclosures during the last recession, documents obtained by The Chronicle show.

Representatives for Gov. Gavin Newsom and other state officials reached the settlement in November, agreeing to pay $1.4 million for attorney’s fees and $26,067 for undisclosed costs for three groups that pursued their case against the state for five years. The Chronicle obtained a copy of the settlement through a public records request.

The two sides were fighting over how California would spend its share of a nationwide settlement with five banks that had been accused of abusive lending practices linked to the economic crash of 2008. While the state tried to use the money to plug a budget hole, courts repeatedly sided with the community groups that argued the money should go to direct aid for homeowners.

The Newsom administration finally gave up the battle after losing in the state Supreme Court last year. Yet the more than $300 million that the state improperly diverted still has not been spent on its intended purpose — helping people who lost their homes to foreclosure.

California’s settlement with the National Asian American Coalition, the National Hispanic Christian Leadership Conference and the COR Community Development Corp. is in addition to $965,943 that the state spent on attorneys’ fees and costs to defend itself against the litigation, according to the governor’s office.

Faith Bautista, president and CEO of the National Asian American Coalition, signed off on the settlement. But she said it does little for her organization, a Daly City nonprofit that provides counseling and down-payment assistance for home buyers, or its clients.

“With the money they paid with their lawyers, with the money we paid with our lawyers, we could have helped so many homeowners,” Bautista said. “It’s always the lawyers who win.” Read more >>>