A nationwide suit on behalf of county land officials is challenging Fannie Mae and Freddie Mac’s refusal to pay transfer fees on property.
The suit, filed in federal court in Camden, N.J., on July 27, charges that the federally chartered finance companies “have engaged in a nationwide effort to avoid their financial obligations . . . by claiming inapplicable exemptions and depriving counties and states of sorely needed revenue.”
The plaintiffs allege that the companies, as grantors of property, are subject to recording fees and other charges assessed on sellers in 37 states and the District of Columbia.
The companies have refused to pay the fees by relying on 12 U.S.C. 1723a(c)(2), which exempts them from state and local taxes, or N.J.S.A. 46:15-10(b), which says federal and state government agencies do not have to pay New Jersey’s realty transfer fees.
But those exemptions do not relieve them from having to pay the transfer fees, since the companies are not government agencies and the fees are not the type of taxes to which the exemptions apply, according to the suit, Cape May County, N.J. v. Federal National Mortgage Association.
The suit, with named plaintiffs Cape May County and Rita Fulginiti, its county clerk, who serves as registrar of deeds and mortgages, was brought on behalf of a New Jersey class and a multistate class.
The first class consists of all New Jersey counties, and the recording officers of those counties, who have recorded deeds or other conveyances in which the defendants have refused to pay the transfer fee.
The second class consists of all counties, court clerks, registrars of deeds and others across the country who recorded deeds in which the defendants refused to pay the fees.
The suit seeks declarations that the defendants must pay the transfer fee as well as legal fees, damages, statutory interest and penalties.
Bryan Clobes of Cafferty Faucher in Philadelphia, who represents the plaintiffs along with Lewis April of Cooper Levenson April Niedelman & Wagenheim in Atlantic City, says the amount of unpaid fees at stake in New Jersey comes to tens of millions of dollars.
Only Alaska, Idaho, Indiana, Louisiana, Mississippi, Missouri, Montana, New Mexico, North Dakota, Oregon, Texas, Utah and Wyoming do not impose a transfer fee, the suit says.
The other 37 states require grantors in a real estate transfer to pay a transfer fee based on the value of the transaction, although the language of the statutes varies.
The transfer fees, typically collected by county recording offices, provide counties and states with essential revenue, which is “particularly important during the nation’s current economic downturn,” the suit says.
The suit says class certification is appropriate because requiring each county to review tens of thousands of real estate transactions to determine whether transfer fees were paid is cumbersome and inefficient, but defendants have electronic records that show when payments were made.
Identifying these transactions is easier for the defendants than for individual class members, the suit says.
Similar suits have been brought in federal and state courts around the country, but the suit filed in New Jersey is believed to be the first nationwide class action, Clobes says.
In March, a federal judge in the Eastern District of Michigan ruled that Fannie Mae and Freddie Mac are not exempt from paying local and state real estate transfer tax. Oakland County, with a population 1.2 million, sought $3 million to $4 million in county taxes and $11 million to $20 million in state taxes. In Oakland County v. Federal Housing Finance Agency, U.S. District Judge Victoria Roberts ruled that the taxes in question are a form of excise tax, to which Fannie Mae’s and Freddie Mac’s statutory exemptions from taxes does not extend.
Fannie Mae and Freddie Mac also have been named in similar suits pending in state and federal courts around the nation, including Florida, Illinois and Ohio. The Judicial Panel on Multidistrict Litigation is expected to rule in September on a motion to transfer such cases to Roberts’ court, says Clobes.
“If the cases get sent to Michigan, [the ruling in the Oakland County case] will have a big impact. If not, it will be persuasive in New Jersey, but not binding,” Clobes says.
Representatives of Fannie Mae and Freddie Mac did not respond to requests for comment.