Wednesday, March 28, 2012

Fannie Mae, Freddie Mac & Tax Stamps

Today's email brought a press release from my Essex South colleague John O'Brien in which he asks the Massachusetts Department of Revenue to immediately file suit against mortgage giants Fannie Mae and Freddie Mac to collect unassessed deeds excise taxes on property formerly owned by the two entities. 

Massachusetts imposes an excise tax on the sale of real estate.  The tax is assessed at the rate of $2.28 per $500 in sales price.  Payment of the tax is the responsibility of the person signing the deed (i.e., the seller).  However, property owned or purchased by a governmental entity is exempt from this tax.  A 1991 Department of Revenue ruling (DOR ruling 91-2) held in relevant part:

Freddie Mac, Fannie Mae, and Ginnie Mae are not "agencies" of the United States government, and, thus, do not come within the express exemption from the Deeds Excise as provided by G.L. c. 64D, § 1. Nevertheless, the transfer of realty by written instrument by all three federally sponsored corporations as part of their statutory obligations as secondary market facilities are exempt from the Deeds Excise because of the exemption from state and local taxation provided to each by federal statute. Moreover, the Deeds Excise cannot be imposed on the grantee where the grantor is one of the three federally sponsored corporations mentioned above.
Today's request by Register O'Brien is based on a recent holding in a case from the US District Court of the Eastern District of Michigan (Oakland County v Fannie Mae, et al - Case #11-12666) in which a county in Michigan sued the two federally created mortgage entities on the grounds that they were liable for payment of the deed excise tax.  The Federal Court in Michigan held that even though the federal legislation creating Fannie Mae and Freddie Mac specifically exempted them from "all state and local taxes", such language does not apply to transfer taxes like the deeds excise tax and that Fannie and Freddie were indeed liable.

O'Brien estimates that since the 1991 DOR ruling, Fannie and Freddie have avoided the payment in $4.2 million in deeds excise tax to the Commonwealth.  

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