Fannie, Freddie off the hook for real estate transfer taxes
A U.S. appeals court has ruled that Fannie Mae and Freddie Mac are exempt from paying Michigan real estate transfer taxes, overturning the previous ruling of a lower court that stated that the government owned real estate organizations would indeed be responsible for these taxes.
Normal procedure during the sale of a property is that the seller shares in some or all of the real estate transfer taxes, however, even though these companies guarantee more than $5 trillion in mortgage loans, U.S. Circuit Judge David McKeague cited a congressional statute stating that they were exempt from ‘all taxation.’
The scent of a trend
This decision is one of many cases that are currently taking place throughout the U.S., as more judges are dismissing cases filed against the government owned real estate companies in order to recoup tax payments.
This will ultimately affect home buyers as they will be solely responsible for payment of the required real estate transfer taxes that come with the purchase of a home. This increase in costs could bar some from closing on a home if they weren’t prepared to fully assume those tax costs.
Leaving transfer taxes to the owner
The judge in the lower court gave an initial unfavorable ruling for Fannie Mae and Freddie Mac stating that the ‘all taxation’ exemption authorized by Congress does not apply to state and county real estate transfer levies. However, Judge McKeague overturned that ruling, choosing to stick to the original congressional interpretation of the statute.
“The statutes at issue here plainly state that the defendants are exempt from ‘all taxation,’” McKeague wrote on behalf of a three-judge panel in Cincinatti. “We are not in a position to second-guess Congress and create a new exception in the statute.”
Future Michigan homebuyers, and buyers in other states with similar ongoing cases, should take note of this trend in judges’ rulings; it appears that many are siding in favor of the real estate mortgage backers, leaving the payment of transfer taxes to the potential home owner.