Milwaukee County will forge ahead with its tax lawsuit against Fannie Mae and Freddie Mac even while six similar cases from around the country have fizzled.
The county sued Fannie Mae, formally the Federal National Mortgage Association, and Freddie Mac, formally the Federal Home Loan Mortgage Corp., in July, claiming the entities illegally avoided paying real estate transfer taxes. The class-action lawsuit includes Wisconsin’s 72 counties.
Fannie, Freddie and their conservator, the Federal Housing Finance Agency, which is trying to intervene in the lawsuit, asked for a dismissal in December.
Since then, similar cases — two in Illinois, two in Minnesota, one in Pennsylvania and one in Florida — have been dismissed. Attorneys for Fannie and Freddie are using those dismissals to support their argument to dismiss Milwaukee County’s case.
But John La Fave, Milwaukee County’s register of deeds, said those dismissals do not guarantee his case will be thrown out. The county’s lawyers from Milwaukee-based Hansen Dickinson Crueger and Reynolds LLC have made their case, La Fave said, and there is a good chance Milwaukee County will win.
“I’m not going to, you know, give a statistical, Las Vegas-chip bet on how it’s going to go,” he said. “I believe we’re right.”
The county’s attorneys did not immediately respond to requests for comment.
Fannie and Freddie are exempt from direct taxation, but after their participation in the foreclosure market ballooned around 2008, many states began to question whether the entities are exempt from real estate transfer taxes. Transfer taxes, a form of excise tax, are assessed only when a property is sold.
Milwaukee County collects $3 in transfer taxes for every $1,000 a sold property is worth. The rates vary from state to state.
Attorneys for Fannie and Freddie claim they are federal entities and are exempt from all taxation. In the six dismissed cases, federal judges agreed.
But La Fave said he is convinced those judges erred. He has estimated Fannie and Freddie owe the county at least $1 million in unpaid transfer taxes.
The state gets 80 percent of what the county collects, so Milwaukee County, according to La Fave’s estimate, would get about $200,000 if it wins the lawsuit. At least a third of that would be used to pay attorneys’ fees, according to a resolution passed by the Milwaukee County Board of Supervisors.
The county’s investment in the case is contingent on a winning decision, La Fave said, so he expects the county’s lawyers to appeal if the case is dismissed.
Half of the dismissed cases Fannie and Freddie cited in a notice to the court either are scheduled for appeal or could be soon. The two in Illinois have been combined for a joint appeal, and lawyers for a Minnesota class-action lawsuit filed by Hennepin County are mulling their options.
Daniel Rogan, Hennepin’s assistant county attorney, said the transfer tax lawsuits filed across the country all seem to draw on a successful case in Michigan in spring 2012.
Bill Horton, an attorney with Giarcomo, Mullins & Horton PC, Troy, Mich., represents the Michigan counties. Horton is assisting Milwaukee County’s lawyers.
“All of them have a little bit of variation to them,” he said. “The fundamental idea underneath them is Fannie and Freddie claim they are exempt from these taxes.”
A federal judge disagreed and ruled that Fannie Mae and Freddie Mac must pay Michigan transfer taxes. The entities appealed, and the case is headed to the 6th U.S. Circuit Court of Appeals and has a May 2 hearing in Cincinnati.
Horton said he expects whichever side loses in the 6th circuit will take the case to the U.S. Supreme Court.
Although Milwaukee County’s lawsuit is similar to the dismissed cases, Horton said, he believes a judge will find fault with Fannie and Freddie’s argument.
“I’ve been doing this a long time,” Horton said, “and I’ve found out when you think you’ve got it figured out, you’re probably wrong.”