Hennepin County elected officials have filed a $10 million civil lawsuit against Fannie Mae and Freddie Mac in U.S. District Court. The suit contends the two privately held home loan corporations owe the state of Minnesota for unpaid deed transfer taxes.
Homeowners pay a deed transfer tax when they sell their property. The suit alleges the two entities did not pay those taxes on thousands of Minnesota properties they bought and sold during the foreclosure crisis.
"We believe Fannie and Freddie, just like any other homeowner, ought to pay that tax," said Hennepin County Attorney Mike Freeman at a Friday morning news conference. "So this case, on behalf of all Minnesota counties, was filed today, similar to some other cases occurring elsewhere in the country."
Freeman said the companies have claimed they are federal entities, and are covered by a state law that exempts the federal government and its agencies from paying taxes to the state.
Hennepin County's lawsuit mirrors one filed by the Oakland County Attorney in Michigan. In that case, U.S. District Court judge Victoria Roberts ruled earlier this year that Fannie and Freddie are not government agencies, and so are not exempt from paying the taxes, according to Freeman.
Freeman said the judge based her decision on established law.
"The U.S. Supreme Court, on a number of occasions, has said the language exemption from 'all taxes' only means exemption from direct taxes, and that this deed tax is an excise tax," he said.
The Michigan Minnesota lawsuits are among several that have been filed against the two lenders across the country.
A quarterly report from Fannie Mae compiled for the U.S. Securities and Exchange Commission earlier this year states that the company plans to appeal the Michigan decision. The report also said the company could face significant financial losses, given that 30 states require home sellers to pay some sort of deed transfer tax.
"Additional similar lawsuits could be filed against us, and taxing authorities in jurisdictions that do not normally impose a tax on the transfer of real property could also seek to impose transfer taxes on us," reads the Fannie Mae report. "If we were to become subject to real property transfer taxes in a large number of states and localities, and if we were required to pay a number of years of past transfer taxes in these states and localities, it would increase our costs going forward and could have an adverse effect on our financial results."
Fannie Mae officials also wrote they believe the company is exempt from paying transfer taxes and therefore is on solid legal footing.
On a typical home sale, the deed transfer tax comes to about $500, according to Hennepin County's Mike Freeman. The majority of the money goes to the state.
Hennepin County Commissioner Mike Opat said his fellow commissioners support the lawsuit because it could help the county pay for environmental cleanup.
"It's timely for us because some of these funds, the county's share, we've been using to clean up polluted lands and get them back on the tax rolls, through our Environmental Response Fund," said Opat.
Representatives from Fannie Mae and Freddie Mac declined to comment on the litigation.