From today's Chicago Tribune:
The question of who is responsible
for the costs associated with foreclosed homes has once again surfaced in Illinois courts.
and still unresolved, is the dispute centering on whether Fannie Mae and Freddie Mac are required, as the owners of foreclosed
properties, to pay fees to register and maintain vacant buildings in Chicago.
issue is the real estate transfer taxes that are paid to Illinois counties and the state when a property changes hands and
the transaction is recorded.
In both instances, the Federal Housing Finance Agency argues that Fannie Mae and Freddie Mac, the
enterprises it oversees, are exempt from local and state rules and paying the monies would interfere with the agency's job
to preserve and protect taxpayer assets.
Cash-strapped local governments, however, claim
Fannie Mae and Freddie Mac are skirting their responsibilities at a time when every dime that comes into a government's coffers
"If you took every recorder's office and found out what (Fannie Mae and
Freddie Mac) owed the state, that would help the state immensely," said Karen Stukel, Will County recorder. "It's
not going to fix the state of Illinois, but it's going to help them. Anything owed to them would be appreciated."
On Thursday, DeKalb County, in conjunction with other counties, filed suit in federal court in Rockford against
Fannie Mae, Freddie Mac and the FHFA to compel them to pay what counties claim are hundreds of thousands of dollars of uncollected
taxes due over the past five years. DeKalb seeks class-action status for its suit.
estate transfer taxes are an excise tax paid to record a property transfer. In Illinois, that tax amounts to 50 cents for
every $500 of a property's value and is deposited with the state. Also, all 102 counties in the state collect an extra 25
cents for every $500 of value for themselves.
While it can be part of a property transaction's
negotiation, typically the buyer pays the transfer tax.
Some months ago, officials in
DeKalb County noticed that the transfer taxes were not being paid uniformly in transactions in which property was being
received by or from Fannie Mae and Freddie Mac, typically as a result of a foreclosure action. Rather, the paperwork accompanying
some property transfers said the transaction was exempt from the tax.
DeKalb County estimated
that during the past five years those unpaid taxes amounted to $40,000. John Acardo, county clerk and recorder, said, "Forty
thousand dollars is a sheriff deputy for us. It can really go a long way for necessities we have to have in our county."
Acardo called officials in other counties, who found discrepancies as well: Sometimes the transfer taxes
were paid and sometimes they weren't. In Will County, the unpaid taxes amount to slightly more than $100,000 over the past
six years, Stukel estimates.
Several counties then notified Fannie Mae and Freddie Mac
that they would no longer record the property transfers until the two enterprises paid what the counties alleged they were
"We have not had to reject any documents and we've been collecting the appropriate
taxes since we issued that letter," Acardo said.
As it turned out, that was only
a temporary victory for the counties.
On Friday the FHFA filed suit in federal court in
Chicago against Illinois and the county recorders in DeKalb, Will, Winnebago, Whiteside, Kendall and Kane counties. The
agency seeks to validate Fannie Mae and Freddie Mac's status as "exempt" from taxation because, according to state
law, the transfer of properties in foreclosure or those involving a governmental body are exempt. Also, the FHFA, as conservator,
is also exempt from the taxes, attorneys argued in the filing.
The suit notes that as
of this month, the Treasury Department has injected more than $187 billion of taxpayer funds into Fannie Mae and Freddie
Mac, and an additional tax liability would exacerbate that infusion.
Housing Finance Agency recognizes the difficulties faced by local officials that are struggling with shrinking tax bases,"
the agency said in a statement. "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."
the dispute might hinge on what entity holds the mortgage at the time the property transfer occurs.
spokeswoman for the Illinois Department of Revenue said the department had not fully reviewed the case.
The case is not without precedent, and that has the local counties encouraged.
March, a federal judge sided with Oakland County, Mich., in a similar suit, ruling that the FHFA, Fannie Mae and Freddie
Mac were not exempt from real estate transfer taxes. The court found that while Fannie and Freddie were not subject to "all
taxation," the interpretation centered on direct taxes, not excise taxes.
County, whose county seat is Pontiac, estimated it alone was owed more than $1 million, and a related class-action suit
also was ruled in favor of the counties. Damages have yet to be assessed.
In its first-quarter
report, Fannie Mae noted the existence of other, similar litigation in other states. The enterprise noted that while it
did not believe the lawsuits would have a material impact, other suits may be filed because more than 30 states impose real
estate transfer taxes.
The FHFA has taken steps to appeal the Michigan ruling.