Pontiac, Michigan -- Oakland County will appeal to the U.S. Supreme Court in its fight against Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac).
The U.S. Sixth Circuit Court of Appeals today overturned U.S. District Court Judge Victoria Roberts' March 23, 2012 summary judgment that favored Oakland County. In her ruling last year, Judge Roberts cited U.S. v. Wells Fargo Bank (1988) in determining that the two lenders failed to pay the transfer tax on deeds recorded by the Register of Deeds Office, as required by Michigan law. The Court of Appeals opinion said the Supreme Court precedent didn't apply in this case. It remanded the case back to Judge Roberts with an order to grant summary judgment to the defendants.
"We always thought this case would end up in the Supreme Court," Oakland County Executive L. Brooks Patterson said. "We'll continue the fight on behalf of our taxpayers because Fannie and Freddie owe county and Michigan taxpayers millions of dollars."
Oakland County stands to recover more than $1.5 million and the State of Michigan $10.5 million if it prevails in the Supreme Court.
"As expected, we're taking our fight to make sure Fannie Mae and Freddie Mac pay Oakland County taxpayers their fair share to the U.S. Supreme Court," said County Treasurer Andy Meisner, the plaintiff in the lawsuit.
Both Fannie Mae and Freddie Mac have recorded deeds in Oakland County which they claimed are exempt from the Michigan real estate transfer tax because they are a government entity or are exempt under federal law. Oakland County argues that the federal law exemption, according to the U.S. Supreme Court (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.
"We respectfully disagree with the Sixth Circuit Court of Appeals that exempt from 'all taxation' means all taxation. It ignores the distinction the Supreme Court has made over many decades that there is a difference between direct taxes, like income taxes, and excise taxes, like the transfer tax," said Keith Lerminiaux, Oakland County corporation counsel.
Oakland County also argues that Fannie Mae and Freddie Mac are not government entities. Fannie Mae and Freddie Mac are corporations with shareholders and are publically traded.
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.
Oakland County's Office of 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.
Oakland County's original lawsuit was filed Monday, June 20, 2011 in U.S. District Court for the Eastern District of Michigan.
For media inquiries only, please contact Bill Mullan, media and communications officer, at 248-858-1048.
See 6th Circuit Opinion