Fannie Mae, Freddie Mac ward off megabucks transfer tax claims

fannie freddie

Fannie Mae, Freddie Mac ward off megabucks transfer tax claims

Last spring and summer, dozens of state and local governments thought they’d found a promising new source of revenue: Fannie Mae and Freddie Mac, the government-sponsored mortgage guarantors that took ownership of thousands and thousands of foreclosed homes in the financial crisis. In class actions filed across the country, governments asserted that Fannie, Freddie and their conservator, the Federal Housing Finance Agency, owed them (collectively) billions of dollars in unpaid real estate transfer taxes on foreclosed homes they resold. As of July, when I first wrote about the litigation, the Judicial Panel on Multidistrict Litigation was considering a motion to consolidate the cases before a federal judge in Detroit who had already granted summary judgment on FHFA’s liability to Oakland County, Michigan. Oakland officials claimed that FHFA owed millions just to their county. If Fannie and Freddie were found to be liable to every other municipality in the 35 states with real estate transfer taxes, FHFA’s exposure would have been mind-blowing.

But it’s becoming clear that the initial summary judgment ruling against the agency by U.S. District Judge Victoria Roberts was an outlier. Since Roberts issued her decision last March, at least seven other courts have tossed transfer tax cases against FHFA, finding that Fannie, Freddie and the conservator are exempt from all taxes under the laws that created them. The two most recent rulings came this week. On Tuesday U.S. District Judge Gene Pratter of Philadelphia dismissed claims by Chester and Delaware counties, and on Wednesday U.S. District Judge David Dotyof Minneapolis tossedcases by Hennepin and Swift counties. Both judges said that under U.S. Supreme Court precedent and the plain language of the laws creating the mortgage guarantors, Fannie, Freddie and the FHFA are exempt from state transfer taxes. According to Pratter’s ruling, only Judge Roberts has ruled otherwise. Every other court that has issued a decision has sided with FHFA and its lead outside counsel in the transfer tax litigation, Howard Cayne and Michael Johnson of Arnold & Porter.

Momentum in the litigation began to shift in September. First, U.S. District Judge Robert Bell of Grand Rapids, Michigan, reached a different conclusion than his colleague in Detroit on Fannie and Freddie’s liability. Then the MDL panel agreed with FHFA that the cases against it should not be consolidated and transferred to Judge Roberts. The issue at the heart of the case was a matter of law, the panel said, so consolidation for discovery wouldn’t serve efficiency. Those two wins were the beginning of an uninterrupted streak for Fannie, Freddie and FHFA.

Rest here…

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