State still undecided about involvement in class-action lawsuit
Milwaukee County has taken another step toward recovering about $200,000 in unpaid taxes from Fannie Mae and Freddie Mac, but the state has not moved on the $800,000 it could be due.
The county filed a class-action lawsuit in federal court Tuesday on behalf of every county in the state to recover real estate transfer taxes the Federal National Mortgage Association, commonly known as Fannie Mae, and the Federal Home Loan Mortgage Corp., commonly known as Freddie Mac, did not pay during the past six years.
Real estate transfer taxes are levied by a county when property is sold. The entity that sells the property is responsible for paying the taxes.
In Wisconsin, that tax is 30 cents on every $100 a property is worth. The tax is paid to a county’s register of deeds office, with 20 percent kept by the county and 80 percent sent to the state’s Department of Revenue.
John La Fave, Milwaukee County’s register of deeds, said his office looked at sales in January and February 2010 and used those numbers to come up with a six-year estimate of $1 million in total transfer taxes owed by Fannie Mae and Freddie Mac in the county.
That means the county would be due an estimated $200,000 and the state an estimate $800,000. That’s for Milwaukee County alone.
Michael Mazemke, register of deeds for Waupaca County and president of the Wisconsin Register of Deeds Association, said his biggest question about the lawsuit was why the state hadn’t leapt at the chance to recover the money.
“It’s amazing that the state really hasn’t gone after this,” Mazemke said.
It is the state’s opinion that Fannie Mae and Freddie Mac are exempt from paying the taxes, Jack Jablonski, deputy secretary of the Department of Revenue, said Friday. Still, he said, the department is reviewing the formal complaint and he expects a discussion with Milwaukee County about its goals for the lawsuit.
Mazemke said the association asked its district managers to ask registers of deeds if they had questions about the lawsuit to forward to Milwaukee-based law firm Hansen Riederer Dickinson Crueger and Reynolds LLC, which is representing the counties. Mazemke said he hadn’t heard about any counties contemplating opting out of the lawsuit. Because it’s a class-action lawsuit, the counties would receive an award if Milwaukee County wins, unless a county opts out.
If other counties were to receive awards, however, it would be up to them to determine how much Fannie Mae and Freddie Mac owe. Mazemke said that could be a burden.
At least half of Wisconsin’s counties keep computerized records, Mazemke said, and it’s possible the companies that created those programs could help search files to find deeds on properties Fannie Mae and Freddie Mac sold.
He said Waupaca County hadn’t checked into that, but he searched files by hand. So far, he has found 297 deeds involving either Fannie Mae or Freddie Mac since January 2007. Now, Mazemke said, he has to winnow out the deeds that list one of the enterprises as the buyer of the property because the transfer taxes are paid by the seller.
“When Freddie Mac [and Fannie Mae] sold a piece to the person, they’re the only ones who would really know what it sold for,” Mazemke said, adding that he looks at the property’s last assessed value before its sale and at any subsequent mortgages to estimate what the taxable value could have been. “It’s doable, but it’s time consuming.”
James Behrend, register of deeds for Waukesha County, said his office was keeping a close eye on the lawsuit and on how Fannie Mae and Freddie Mac respond, but he has yet to start the process of determining how much the enterprises could owe.
“It does take local resources to engage in activities like this,” Behrend said. “Internally, there’s always a cost.”
Behrend said he had an approximate idea of what the county could gain. He estimated Waukesha County, the third-largest in the state according to the 2010 census, does about 60 to 70 percent of the business Milwaukee County, the largest, does. But he said a direct comparison, such as saying the Waukesha County could receive an award totaling 60 percent to 70 percent of Milwaukee County’s, could be misleading because he was unsure what percentage of each county’s sales were done by Fannie Mae and Freddie Mac.
Kristi Chlebowski, register of deeds for Dane County, is trying to put a number on the taxes the county could be owed and wants that number within a week. Dane County is the second largest in the state.
Chlebowski said she was doing the research herself to keep her staff free for day-to-day operations.
“We have enough daily documents coming in for recording,” she said. “We need to keep up with those.”
The lawsuit is based on one brought in Michigan. In that case, Fannie Mae and Freddie Mac claimed to be exempt from paying the taxes because they are government entities.
However, the district judge hearing the case determined Fannie Mae and Freddie Mac are not government entities. They were created by the government but are publicly traded companies, the judge said, and therefore are not covered under the government’s exemption from taxation. Furthermore, the judge said, the exemption only covers direct taxation, which transfer taxes are not because they are only levied when property changes hands. The enterprises have appealed that decision.
Andy Phillips, general counsel for the Wisconsin Counties Association, said a committee meeting had been scheduled for next Tuesday when the county’s attorneys would describe the lawsuit. The committee could then make a recommendation in August to the association’s board of directors on what stance they should take.
As of Friday afternoon, Phillips said, the association did not have an official position on the lawsuit but supports Milwaukee County.
If the counties are successful, La Fave said, the state will benefit regardless of whether it actively pursued Fannie Mae and Freddie Mac through the suit. He said he wasn’t sure whether state involvement would lend more weight.
Milwaukee County did not approach the state, La Fave said, because it is the counties’ responsibility to collect the taxes.
“It’s our duty to handle the processing and collect the fee,” La Fave said. “There’s no need for a state to be involved.”