Modified: January 23, 2015 3:10pm
Suit Seeks to Recover Millions in Unpaid Real Estate Transfer Taxes from Fannie Mae and Freddie Mac
ERIE COUNTY, NY— Today, Erie County Executive Mark C. Poloncarz was joined by Erie County Attorney Michael Siragusa in announcing that Erie County (“the County”) has filed a lawsuit against the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”) to recover millions of dollars in unpaid real estate transfer taxes. The suit, filed in U.S. District Court, contends that the two federally-charted and privately-held corporations have failed to pay both the New York Real Estate Transfer Tax and Erie County Real Estate Transfer Tax, which are excise taxes, on thousands of mortgages in Erie County and have thus deprived local taxpayers and municipalities of rightful tax income.
“When taxpayers sell their homes, they are expected to pay transfer taxes as the title changes hands and properties change ownership. Any resident who has bought or sold a home knows this, and thousands of responsible taxpayers have followed this process throughout Erie County and around the State,” said Poloncarz. “Unfortunately, two of the biggest mortgage holders in the U.S. have unilaterally sought to exempt themselves from following these rules. These unpaid taxes are a huge burden on residents who have played by the rules and done the right thing, and we will fight for their rights to retrieve these funds. It is a matter of fundamental fairness: two of the largest companies in the world should pay their taxes just like you and I do.”
“This lawsuit seeks to recover damages in an amount equal to that of the unpaid transfer taxes, in excess of $2 million, along with any applicable interest and penalties,” said Siragusa. “Fannie and Freddie have been depriving Erie County taxpayers of millions of dollars in tax receipts that should rightfully go to Erie County residents and programs by wrongfully claiming that they enjoy an exemption as quasi-governmental entities. We do not believe that Fannie and Freddie should be treated any differently than anyone else paying this tax, and our legal action seeks to protect taxpayers by reclaiming those tax monies that are rightfully due to our community.”
New York State imposes a real estate transfer tax on conveyances of real property or interests therein at the rate of $4.00 for each $1,000.00 of value. Erie County’s real estate transfer tax adds another $5.00 for each $1,000.00 of property value, and is to be paid at the same time as the real estate transfer tax imposed by New York State Law is required to be paid. Accordingly, the tax due to be paid on transfer of real property in Erie County is $9.00 per $1,000.00 of value.
New York State law exempts agencies or instrumentalities of the U.S. government from the transfer tax, and both Fannie Mae and Freddie Mac have received past tax exemptions by claiming governmental status. However, while Fannie Mae and Freddie Mac were originally created as quasi-governmental entities and continue to receive government support, both currently are publicly traded private corporations. The County lawsuit argues that this significant change in status invalidates their exemption from transfer tax liability and provides grounds for the recovery of the back taxes.
Precedent for the lawsuit was recently set when the U.S. District Court for the Eastern District of Michigan determined that federal law does not exempt Fannie Mae and Freddie Mac from state transfer taxes (Oakland County vs. Federal Housing Finance Agency, 2012 WL 1658789 [E.D. Michigan, May 11, 2012]). In their ruling, the court reasoned that while federal agencies are exempt from direct taxes, they are not exempt from excise taxes. The Real Estate Transfer Tax is considered an excise tax and not a direct tax because it taxes the conveyance of a property and not the property itself.
Similar lawsuits have been filed by counties in Michigan, North Carolina, Florida, Connecticut, Illinois, Tennessee, Ohio, Georgia, South Carolina, Kentucky, and Pennsylvania, as well as in Washington, D.C. Erie County has retained Buffalo law firm Cantor, Dolce, Panepinto, PC to pursue the lawsuit.