Group sues state, questions distribution of mortgage settlement funds

DOVER — A activist group focused on helping Delaware residents with credit issues is suing the state over the use of bank settlement funds.

The Delaware Community Reinvestment Action Council announced Monday it has filed a lawsuit in the Court of Chancery, arguing the state improperly allocated the funds in ways that did not conform to guidelines set down in the settlement.

The litigation stems from the General Assembly’s decision this summer to help balance the budget with money obtained from settlements with Bank of America, Citigroup and Standard & Poor’s for alleged mortgage-related improprieties.

Several different pots of money were on the table in June and July, with the legislature spending about $31 million of the $61 million to provide one-time funding for programs and services.

The decision disappointed Attorney General Matt Denn, a Democrat who advocated using a portion of the money for crime-fighting and community initiatives.

It also led to the Delaware Community Reinvestment Action Council writing in July to U.S. Attorney General Loretta Lynch calling for the federal government to investigate the spending to “determine whether its disbursement was in accord with the meaning and intent” of the settlement agreement.

Monday’s lawsuit names the state, Gov. Jack Markell, Treasurer Ken Simpler and Controller General Mike Morton as defendants. In addition to the Delaware Community Reinvestment Action Council, four Delaware residents who claim to be adversely affected by the mortgage-related crisis of 2008 are named as plaintiffs.

“They were impacted by the actions of Bank of America and but for the actions of the defendants, they would have benefited from the settlement agreement,” a portion of the lawsuit reads.

The suit seeks to restrict the defendants from directing how the funds are spent, to undo the actions of the General Assembly and to cause the money to be utilized to aid those harmed by the mortgage crisis.

According to the nonprofit, previous attempts to come to a resolution with the state were unsuccessful.

“Although the attorney general was consulting with the General Assembly on ways to spend the settlement funds to achieve the goals expressed in the settlement agreement, the members of the Delaware General Assembly ignored the needs of those affected by the mortgage crisis as well as the language of the settlement agreement,” the lawsuit further states.

“Instead the legislators decided that the $31.6 million gained from the settlement would be added to the general revenues of the state and used to fill a shortfall in the state budget. In so doing, the General Assembly ignored the language of the settlement agreement, utterly failed to use the funds to address the problems created by the mortgage crisis and instead passed legislation appropriating the settlement funds to uses for wholly unrelated purposes, such as farmland preservation.”

Gov. Markell’s office declined comment.

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