Pontiac, Michigan -- Oakland County Treasurer Andy Meisner and Oakland County are suing the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac) because the two lenders failed to pay the transfer tax on deeds recorded by the Register of Deeds Office, as required by Michigan law. Oakland County stands to recover as much as $1.5 million and the State of Michigan stands to recover $10.5 million.
The lawsuit was filed Monday, June 20, 2011 in U.S. District Court for the Eastern District of Michigan. A motion for summary judgment was filed Tuesday, June 21, 2011 seeking a decision of the court without the need for a trial.
"It's time for those who caused the foreclosure crisis and the enormous drops in Oakland County property values to pay their fair share," said Oakland County Treasurer Andy Meisner. "Oakland County taxpayers shouldn’t pay the tab to clean up Fannie and Freddie’s mess."
Both Fannie Mae and Freddie Mac have recorded deeds in Oakland County and claimed they are exempt from the Michigan real estate transfer tax because they are a government entity or are exempt under federal law. They are wrong on both counts.
Fannie Mae and Freddie Mac are not government entities. "Fannie Mae and Freddie Mac are corporations with shareholders and are publically traded," said Judith Cunningham, Oakland County corporation counsel. "In fact, Freddie Mac's web site informs potential investors that it is not a 'government agency.' Therefore, the state law exemption doesn’t apply."
The federal law exemption, according to the U.S. Supreme Court (see U.S. v. Wells Fargo Bank in 1988), does not apply to excise taxes. The transfer tax is an excise tax and therefore the federal law exemption is not applicable.
The amount of lost revenue is large. The state portion of the tax is $7.50 for each $1000 in value of the property. The county portion of the tax is $1.10 for each $1000 in value. These amounts are set by statute. Oakland County believes there are hundreds and perhaps thousands of deeds recorded by Fannie Mae and Freddie Mac where they have improperly claimed one or both exemptions. Using reasonable assumptions based on a review of a cross section of Fannie Mae and Freddie Mac deeds, their inappropriate use of exemptions has saved the lenders and cost Oakland County at least $250,000 per year. Going back six years, Oakland County could recover as much as $1.5 million and the State of Michigan as much as $10.5 million.
Oakland County Corporation Counsel discovered Fannie Mae and Freddie Mac’s failure to pay after reading an article titled "Bypassing county fees may cost banks" in the December 2, 2010 edition of the Oakland County Legal News. The Corporation Counsel - along with outside counsel Kenneth Robinson and William Horton - began to take a look at real estate transfer taxes on various documents filed with the Oakland County Register of Deeds. In the course of examining those documents, Corporation Counsel discovered Fannie Mae and Freddie Mac’s failure to pay.
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