Several counties in Illinois have advised the Federal National Mortgage Association and the Federal Home Loan Mortgage Corp. that they won’t be able to file documents that transfer ownership of properties to or from the two companies if they don’t start paying transfer taxes. So the regulator of the secondary lenders has filed a federal lawsuit in an attempt to block the counties and state from attempting to collect the taxes.
The lawsuit was filed Friday by the Federal Housing Finance Agency in a federal court located in Rockford, Ill. Named as defendants are Director of the Illinois Department of Revenue Brian Hamer and several county recorders.
According to the complaint, the defendants are imposing liability on Fannie Mae and Freddie Mac for state and county transfer taxes that are assessed at the time real estate deeds are recorded when properties are transferred to or from the government-sponsored enterprises.
But the regulator argues that Congress has expressly exempted to two secondary lenders and FHFA from all state and local taxation except for one irrelevant exception.
“Longstanding federal statutes and Supreme Court rulings preclude states, counties and municipalities from imposing real estate transfer taxes on Fannie Mae and Freddie Mac, yet, several counties in Illinois are requiring or threatening to require them to pay such taxes,” the conservator of the two housing finance agencies said in a statement. “Federal law does provide for Fannie Mae and Freddie Mac to pay real estate taxes on the value of properties they hold, but does not sanction taxes tied to the transfer of properties.”
Letters received from four of the county recorders demand payment for the state and county excise taxes for transactions that occurred over the past five years. In addition, they warned that they will reject documents that claim a transfer tax exemption for Fannie or Freddie.
Two other county recorders have issued memoranda indicating they will reject instruments presented by the pair of government-controlled companies if not accompanied by the required taxes.
“The Federal Housing Finance Agency recognizes the difficulties faced by local officials that are struggling with shrinking tax bases,” FHFA said. “However, FHFA must resist when local governments impose unlawful tax-raising programs on Fannie Mae and Freddie Mac that, in turn, create a cost for taxpayers across the country.”
A judgment is sought declaring that the plaintiffs cannot be held liable for the taxes.
