The State Bar of Michigan Real Property Law Section E-Newsletter dated May 1, 2012 took note of the litigation being handled by Bill Horton and Greg Gamalski on behalf of Oakland County against Fannie Mae and Freddie Mac. Summary judgment was granted in favor of the County. Damages are now being calculated. See article below…

By K.J. Miller and Jeffrey Jamison, Dykema Gossett, PLLC

Last month, Judge Victoria Roberts, E.D. Michigan, ruled that Fannie Mae and Freddie Mac are not exempt from paying real estate transfer taxes and are liable for millions of dollars of unpaid taxes. The two mortgage giants have long claimed exemptions based on specific federal statutes exempting them from “all taxation.” In Oakland County v. Federal Housing Finance Agency (E.D. MI., No. 11-12666, March 23, 2012), Judge Roberts rejected this argument and granted summary judgment in favor of plaintiffs.

The Court explained that the “Supreme Court in [United States v. Wells Fargo Bank, 485 U.S. 351 (1988)] made clear that where a statute prohibits the collection of ‘all taxation,’ an excise tax is still due.” The facts in the Oakland County case were largely undisputed and the sole issue in controversy was whether the federal statute at issue precluded the imposition of state and local real estate transfer taxes. According to the decision, the parties did not dispute the characterization of the real estate transfer taxes as excise taxes, and the Court concluded: “Wells Fargo dictates that the defendant’s exemptions do not cover the Transfer Taxes,” and that Fannie Mae and Freddie Mac “are liable for the Transfer Taxes.” The damages in the Oakland County case are estimated to be $13.5 million.

An appeal of this ruling—the first ruling involving Fannie Mae’s and Freddie Mac’s claim of exemption from real estate transfer taxes—is expected given its potentially far-reaching implications. Although borrowers may attempt to use this ruling as an affirmative defense or a counterclaim, such claims would fail as the real estate transfer tax statutes do not provide private causes of action or defenses for borrowers.

William Horton

Gregory J. Gamalski