Hennepin County sues Fannie and Freddie Mac for $10 million
- Article by: MAYA RAO
- Star Tribune
- August 24, 2012 - 8:18 PM
Hennepin County sued Fannie Mae and Freddie Mac on Friday, accusing the giant mortgage buyers of shortchanging Minnesota counties millions of dollars by refusing to pay the state's deed transfer tax.
The lawsuit is the latest in a slew of cases by counties in Illinois, Florida, North Carolina and other states against the two so-called government-sponsored entities over their refusal to pay the transfer tax even as they acquired thousands of foreclosed homes in recent years and resold them.
The two corporations have argued that they don't have to pay transfer fees because their federal charters state that they are not subject to state and county taxation.
Hennepin County officials are hopeful following a court ruling that struck down that reasoning when Oakland County, Mich., sued Fannie and Freddie over their failure to pay real estate transfer taxes.
"Others have paid it, and it's a matter of fairness," County Board Chairman Mike Opat said Friday.
U.S. District Judge Victoria Roberts sided with Oakland County in a March 23 ruling, saying that Michigan transfer taxes are imposed on the privilege of doing business rather than on the entities themselves. Her decision noted that the Supreme Court over the past 80 years has permitted excise taxes even when taxes on property were forbidden.
But a federal judge in Washington, D.C., this month also dismissed a lawsuit by Robert Hager of Nevada, challenging Fannie's and Freddie's exemption from the transfer tax.
This week the Nevada Tax Commission also voted against an effort by Treasurer Kate Marshall to compel the two firms to pay the transfer taxes.
And in June, the firms sued the Illinois Department of Revenue and several counties in that state to block the collection of those taxes.
Spokespersons for the two corporations did not respond to requests for comment Friday.
The pair were created by Congress to make it easier to obtain home loans by purchasing mortgages originated by other banks and pooling those loans into investment securities. They are publicly traded, for-profit corporations. They were taken over by the Federal Housing Finance Agency during the financial crisis in 2008, as they were facing steep losses on risky mortgages.
Hennepin County, like areas nationwide, experienced a large jump in foreclosed homes around that time, and Fannie and Freddie suddenly became those homes' owners. The corporations have transferred at least 7,500 deeds in Hennepin County since 2005, according to the lawsuit.
The county is seeking $10 million and a judgment that would require them to pay deed transfer taxes they would have owed since February 2006, interest on the unpaid taxes, attorneys' fees, and a ruling that the corporations cannot claim such an exemption in the future.
The deed transfer tax on a median-priced home of $170,000 in the Twin Cities is $561, the county said. Ninety-seven percent of that money goes to the state of Minnesota, while the rest goes to the county to administer the tax. An additional 0.0001 percent is collected by Hennepin and Ramsey counties to fund environmental cleanups.
Maya Rao 612-673-4210
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