Podcasts & RSS Feeds
Most Active Stories
- Budget deficit forcing school officials to close Albion High School
- The top 10 high schools in Michigan (according to two magazines)
- You have to see this stunning video of Michigan's Northern Lights
- Are people in Ironwood really afraid of wolves? (part 2)
- The 15 Michigan schools running the biggest deficits
Wed July 20, 2011
Oakland County: Fannie, Freddie dodging taxes
There’s a David-and-Goliath story about to play out in federal court in Detroit.
Oakland County Treasurer Andrew Meisner says Fannie Mae and Freddie Mac are illegally dodging millions of dollars in taxes. The government-backed mortgage giants were created by the federal government, but they were spun off decades ago as hybrid enterprises with a policy mission and a profit motive.
Just where Fannie and Freddie sit on the public-private spectrum is the central issue of the court case. And the court fight could be a bellwether for similar battles in other states.
"If it walks like a duck..."
Like most states, Michigan has something called a real estate transfer tax. It’s paid when a property changes hands.
Standing in front of a handsome brick home with a three-car garage and soaring entryway in Troy, Meisner points out that the home sold in 2008 for about $353,000.
The problem with this home and many others like it, Meisner says, is that it was sold in foreclosure by Freddie Mac – which, like its sister Fannie Mae, claims to be exempt from paying Michigan’s transfer tax.
“The total lost revenue on that transaction was $3,040.10," Meisner says. His lawsuit, filed in U.S. District Court in Detroit, claims the mortgage giants owe the state and his county more than $12 million in real estate transfer taxes over the past six years.
The lawsuit challenges Fannie and Freddie’s tax exempt status as government entities. Fannie Mae was created by the government during the Great Depression to support home mortgage lending. It was converted to a publicly traded company owned by investors in the late Sixties. Freddie Mac launched in 1970 and went public 1989.
Fannie and Freddie have been under government conservatorship since the financial crisis. Both declined to comment on the lawsuit.
Meisner says the companies are trying to have it both ways – enjoying the profits of a private company, and the protections of a government entity.
“If it walks, flys and quacks like a duck, it’s a duck. And Fannie and Freddie walk, fly and quack like private companies,” says Meisner.
Public or private?
Whether Meisner prevails will depend on the judge's interpretation of state and federal law. Ann Graham is a professor at Hamline University in Minnesota, and an expert on banking law. She says there is a case for deeming Fannie and Freddie private.
"They actually have private shareholders who expect a profit," she says. "They have executives who are compensated on profits, just like any other publicly traded corporation.”
One argument against defining Fannie and Freddie as public entities, though, are the organization's own charters, which exempt them from state and local taxes.
Whatever the outcome of the suit, it’s already caught the attention of other local officials around the country.
Local governments "stuck with the bill"
Phil Ting is the assessor-recorder for the city and county of San Francisco. He estimates San Francisco is losing about one and a half million dollars a year in transfer taxes that would otherwise go to pay for things like police and roads.
“What we’ve seen is in local government we’ve really been stuck with the final bill on this foreclosure crisis," says Ting. "What Oakland County has discovered is similar to what California is looking at, which is how one industry has gotten very preferential treatment in this process and it’s a question of: why? And does it really make policy sense?”
Ting says he’d like to see a ballot initiative in California that would require the transfer tax to be paid when a homeowner defaults and the property reverts to a financial institution. He says he’s keeping a sharp eye on what happens in the Michigan lawsuit to see whether Fannie Mae and Freddie Mac might be subject to that tax as well.