Fannie Mae, Freddie Mac ward off megabucks transfer tax claims

Last spring and summer, dozens of state and local governments
thought they’d found a promising new source of revenue: Fannie
Mae and Freddie Mac, the government-sponsored mortgage
guarantors that took ownership of thousands and thousands of
foreclosed homes in the financial crisis. In class actions filed
across the country, governments asserted that Fannie, Freddie
and their conservator, the Federal Housing Finance Agency, owed
them (collectively) billions of dollars in unpaid real estate
transfer taxes on foreclosed homes they resold. As of July, when
I first wrote about the litigation, the Judicial Panel on
Multidistrict Litigation was considering a motion to consolidate
the cases before a federal judge in Detroit who had already
granted summary judgment on FHFA’s liability to Oakland County,
Michigan. Oakland officials claimed that FHFA owed millions just
to their county. If Fannie and Freddie were found to be liable
to every other municipality in the 35 states with real estate
transfer taxes, FHFA’s exposure would have been mind-blowing.

But it’s becoming clear that the initial summary judgment
ruling against the agency by U.S. District Judge Victoria
Roberts
was an outlier. Since Roberts issued her decision last
March, at least seven other courts have tossed transfer tax
cases against FHFA, finding that Fannie, Freddie and the
conservator are exempt from all taxes under the laws that
created them. The two most recent rulings came this week. On
Tuesday U.S. District Judge Gene Pratter of Philadelphia
dismissed claims by Chester and Delaware counties, and on
Wednesday U.S. District Judge David Doty of Minneapolis tossedcases by Hennepin and Swift counties. Both judges said that
under U.S. Supreme Court precedent and the plain language of the
laws creating the mortgage guarantors, Fannie, Freddie and the
FHFA are exempt from state transfer taxes. According to
Pratter’s ruling, only Judge Roberts has ruled otherwise. Every
other court that has issued a decision has sided with FHFA and
its lead outside counsel in the transfer tax litigation, Howard
Cayne and Michael Johnson of Arnold Porter.

Momentum in the litigation began to shift in September.
First, U.S. District Judge Robert Bell of Grand Rapids,
Michigan, reached a different conclusion than his colleague in
Detroit on Fannie and Freddie’s liability. Then the MDL panel
agreed with FHFA that the cases against it should not be
consolidated and transferred to Judge Roberts. The issue at the
heart of the case was a matter of law, the panel said, so
consolidation for discovery wouldn’t serve efficiency. Those two
wins were the beginning of an uninterrupted streak for Fannie,
Freddie and FHFA.

The Justice Department, meanwhile, has entered FHFA’s
interlocutory appeal of Roberts’s summary judgment ruling to the
6th Circuit Court of Appeals, supporting the agency’s position
that it owes nothing in transfer taxes. The 6th Circuit has said
it will decide the appeal on the briefs, which it will consider
in May.

Plaintiffs’ lawyers are pursuing appeals of rulings against
them at the 7th and 11th Circuits, but unless they can dig
themselves out of the hole they’re in, this litigation will be
over sooner rather than later.

(Reporting by Alison Frankel)

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