Are Fannie and Freddie exempt from mortgage recording taxes?

January 6, 2015 at 9:12 am Leave a comment

More and more federal courts are answering this question with a resounding :“You Bet they are.”

The latest court to rule on this issue was the West Coast’s Ninth Circuit. In a December 30th Decision the Circuit held that Fannie Mae and Freddie Mac were exempt from paying mortgage transfer taxes imposed by Spokane Washington (City of Spokane v. Fed. Nat. Mortgage Ass’n, No. 13-35655, 2014 WL 7384311 (9th Cir. Dec. 30, 2014)).

The issue involved in this and similar cases around the country relates to mortgage transfer or recording taxes imposed by localities when mortgages are recorded. As New York’s Courts have explained these transfer taxes are not property taxes but taxes imposed by localities in return for the right to record mortgages with county clerks.

When you consider how many mortgages Fannie and Freddie buy exempting them from having to pay for mortgage recordation is a big savings. An increasingly long list of Federal Circuit Courts-the ones just below the Supreme Court-have looked at the federal statutes exempting the GSE’s from paying certain state level taxes and concluded that Congress intended to exempt them from transfer taxes. According to the Ninth Circuit these cases include:     Town of Johnston v. Fed. Hous. Fin. Agency, 765 F.3d 80 (1st Cir.2014) ; Bd. of Comm’rs v. Fed. Hous. Fin. Agency, 758 F.3d 706 (6th Cir.2014)l. Cnty. v. Fed. Hous. Fin. Agency, 747 F.3d 215 (3d Cir.2014) (same); Montgomery Cnty. v. Fed. Nat’l Mortg. Ass’n, 740 F.3d 914 (4th Cir.2014) ; DeKalb Cnty. v. Fed. Hous. Fin. Agency, 741 F.3d 795 (7th Cir.2013) (same); Bd. of Cnty. Comm’rs v. Fed. Hous. Fin. Agency, 754 F.3d 1025 (D.C.Cir.2014) (rejecting same statutory arguments); Hennepin Cnty. v. Fed. Nat’l Mortg. Ass’n, 742 F.3d 818 (8th Cir.2014); Vadnais v. Fed. Nat’l Mortg., 754 F.3d 524 (8th Cir.2014).

What is going on here? For one thing the federal statutes at issue are broad: 12 U.S.C. §§ 1452(e) provides that Freddie “shall be exempt from all [state and local] taxation, … except that any real property of [Freddie] shall be subject to State [and] local taxation to the same extent … as other real property is taxed.” An identical exemption is also given to Fannie. Courts have consistently held that recording taxes are not property taxes contrary to what Spokane and other localities have argued.

In addition to the plain statutory language one of the most important decisions in the history of this Republic is .” M’Culloch v. State, 17 U.S. 316, 327, 4 L. Ed. 579 (1819), in which Supreme Court’ Chief Justice Marshal ruled that localities could not tax national banks absent Congressional consent because “An unlimited power to tax involves, necessarily, a power to destroy; because there is a limit beyond which no institution and no property can bear taxation.”

The decision of what taxes the GSE’s should be subject to is for Congress, not individual states..

As the world turns….

The Dow Jones Industrial Average is an increasingly crude barometer of economic activity but yesterday’s 300 point plunge underscores that the biggest single impediment to economic events in this country are events on the international stage over which America has very little control.

In case you missed it the Greeks celebrated the Christmas season by scheduling parliamentary elections for late January.. It was Greece that triggered the greatest threat to the Euro starting in 2010 after it needed other European Governments to finance its debt. Greece is again making noise. A party dedicated to scaling back the austerity measures under which the country has been living is in the lead according to polling and the WSJ is reporting that a game of high stakes Russian roulette is again being played.   French President François Hollande on Monday raised the possibility of Greece exiting the 19-member bloc—departing from the traditional stance that euro membership is irrevocable and Sigmar Gabriel, Germany’s economics minister and vice-chancellor, warned that Berlin wouldn’t be blackmailed into offering concessions on Greece’s debt or the terms of the international plan that rescued the country’s finances.

Why should you care? On a practical level European instability is one of the reasons why   US bond yields are remaining so low: Investors need a safe place to put their money. (Yesterday the10-year Treasury yield fell 8.8 basis points to 2.035%,, its lowest level since May 2013 according to MarketWatch while the 30-year Treasury yield  fell 9.1 basis points to 2.604%.) In addition the Euro Zone is one of the world’s largest economies and even the remote possibility that it could break apart is a drag on the world’s economic growth. Here is an article on the subject,

http://www.wsj.com/articles/france-and-germany-push-athens-on-bailout-commitments-1420477093?tesla=y&mod=djemITP_h

http://www.marketwatch.com/story/greek-exit-fears-push-30-year-treasury-yield-to-two-year-low-2015-01-05

 

Entry filed under: Legal Watch, Mortgage Lending. Tags: , .

A Look Back The Real Bank of America

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Authored By:

Henry Meier, Esq., General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association.

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