The five lenders – Bank of America, Citi, JPMorgan Chase, Wells Fargo, and Ally – set aside funds to provide assistance to affected homeowners. They also allotted $124 million to Texas.
An investigation by ABC affiliate WFAA revealed none of those funds went to their intended recipients – homeowners who fell prey to robo-signing and other unethical lending practices.
Of all state payouts, Texas received the third-highest settlement. The settlement documents described how the funds should be used:
"To the extent practicable, such funds shall be used for purposes intended to avoid preventable foreclosures, to ameliorate the effects of the foreclosure crisis, to enhance law enforcement efforts to prevent and prosecute financial fraud, or unfair or deceptive acts or practices …"
However, there have been thousands of Texans who have lost their homes – or are soon to lose their homes -- through foreclosure.
Instead of using those funds to help these owners, then Texas Attorney General Greg Abbott placed the money in the state’s general fund, according to WFAA.
Jim Daross, a lawyer in the attorney general’s office at the time, told WFAA state law stipulated that was the only thing that could be done with the money.
"Because the AG's office was directed by a state statute as to how to deposit the funds, it was therefore 'impracticable' for it to do anything other than pay the funds over to the general fund," said Daross, who now works in the private sector. "In reality, I believe it would have been illegal to do anything other than that."
However, state Rep. Yvonne Davis, a Democrat, sponsored a bill this year that would make those funds available to homeowners.
"It made no sense then for the state to take all the money and not provide programs, resources, things to make a difference in people's lives," Davis said, according to WFAA. "That money was supposed to help them where they've been wronged."
That bill passed in May.
And now there is lawsuit pending accusing the state of illegally diverting the funds.
"This money was earmarked – it's in settlement documents in a federal district court," Richard Roman, former district judge, and current attorney for one of the homeowners, told WFAA. "That settlement designates where the money is supposed to go to. When it got to Texas, it went somewhere else."
Texans who lost their homes during the financial crisis expected some much-needed help from the government, following a $25 billion national settlement with five lenders accused of wrongly foreclosing homes. None, however, saw the benefits of that massive settlement, according to an investigation by a local news outlet.