Score one for the little guy. Or maybe make that $5 million for the little guy.
A Michigan county has won a lawsuit against Fannie Mae and Freddie Mac in what might be the first – but probably won’t be the last – suit of its kind.
Oakland County, Mich., at one time one of the country’s wealthiest counties, was hit hard by the recession and lost $14 billion in taxable property values since 2007, according to Treasurer Andy Meisner. But what really put salt on the wound was when Fannie Mae and Freddie Mae failed to pay transaction taxes it owed each time it foreclosed on a property and sold it off to a new owner. Those taxes -- about $1,500 for the state and $220 for the county on a $200,000 home – grew in the wake of the housing crunch. Meisner estimates that Fannie and Freddie owe $3 million to $5 million to the county, plus another $15 million to $20 million to the state, in unpaid transaction taxes from 2005 to 2011.
Last year, Meisner decided to take Fannie and Freddie head on and filed a federal lawsuit against the two government-sponsored enterprises. The two companies argued that their federal charters exempt them from “all taxation,” including that of states and localities. But Judge Victoria A. Roberts of the U.S. District Court for the Eastern District of Michigan ruled that the transaction taxes weren’t so much a tax on Fannie and Freddie as they were a tax on the act of transferring property. In short, the exemption applies to some taxes, but not the kind Meisner is trying to collect. Even more impressive was that ruling was in response to Oakland’s motion for summary judgment. Essentially, the county asked that Roberts make a speedy ruling and dispense with a jury since Fannie and Freddie were so obviously in the wrong.
Even if Oakland County recovers the entirety of what Meisner believe it’s owed, that won’t come anywhere near fixing the economic damage that occurred there when the housing bubble burst. But, Meisner says, it’s a start. “It’s an important beginning, and it sends a very clear message not only to Fannie and Freddie, but to the banks, that the courtroom door is open, and where a meritorious case can be put forward and argued effectively… justice can prevail,” Meisner says.
Meanwhile, the Oakland case could wider-reaching implications. In a separate case filed after Meisner’s suit, nearby Genesee County filed a class-action suit over the same issue, arguing that all Michigan counties are affected by Fannie and Freddie’s claim of tax exemption. Roberts ruled in favor of the counties in that case too. “The ripple has spread further than Oakland County already,” Meisner says.
Officials with Federal Housing Finance Agency won’t say whether they intend to appeal. “We are reviewing or options as this and other similar cases remain before the courts,” spokeswoman Corinne Russell says.