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Summit County fights alone to recover Freddie Mac’s unpaid taxes
BENJAMIN WHITE
Legal News Associate Editor
Published: August 24, 2012
Summit County Prosecutor Sherri Bevan Walsh sued the Federal Home Loan Mortgage Corporation in July for failing to pay county taxes, choosing a different tactic than the other 87 Ohio counties, which have combined to bring a class action federal lawsuit against the giant mortgage lender and its counterpart, Fannie Mae.
Chief Counsel Mary Ann Kovach and Assistant Prosecutor Joe Fantozzi will handle the case for the county. They contend that Freddie Mac failed to pay around $200,000 in taxes and fees to the county from 2002 until early 2009, claiming its federal charter exempted them from paying “all taxation.” Although Freddie Mac began as a government entity, Fantozzi said, its current status as a private corporation does not preclude it from paying a host of conveyance fees.
Walsh’s office filed its complaint in the Summit County Court of Common Pleas a few weeks before the rest of Ohio’s counties filed a class action lawsuit in the United States District Court in the Southern District of Ohio Western Division. Fantozzi said Summit County officials chose to act alone because they had no grievance with Fannie Mae and believed taking part in the class action suit would cost county taxpayers money.
“We represent the county,” Fantozzi said. “We’re their lawyers, and we were trying to save money so we wouldn’t have to pay outside counsel.”
Fantozzi said that in 2002, Freddie Mac simply stopped paying transfer taxes, which amount to $4 per $1,000 of property value, in addition to recording and lot fees.
In 2008, the Ohio Department of Taxation (ODT) issued a bulletin that asserted the state’s stance deeming Freddie Mac and Fannie Mae private corporations without the tax benefits of government entities. The bulletin cited a decision of the U.S. Court of Appeals for the 9th Circuit, which labeled Freddie Mac a private corporation for constitutional purposes, because only five of its 18 directors are appointed by the government (the others are elected by shareholders). Also cited was a 6th Circuit Court of Appeals decision which stripped Fannie Mae of its government entity label in the context of due process. The bulletin conceded that both Fannie Mae and Freddie Mac retain the title of government instrumentalities for purposes of federal preemption, estoppel and exemption from punitive damages.
“Fannie Mae and Freddie Mac are still for-profit, private companies and should not be considered as instrumentalities of the federal government for purposes of transferring real property,” the ODT memo read.
In early 2009, both corporations began paying conveyance fees but failed to pay the back taxes they had accrued.
Earlier this year, a precedent-setting summary judgment in favor of Oakland County, Michigan in the U.S. District Court in the Eastern District of Michigan officially deemed both lenders private corporations in the realm of excise taxes. Both parties agreed that transfer taxes and their associated fees fell under the classification of excise taxes.
“Everyone was watching that case to see what would happen,” Fanozzi said.
Fantozzi said he hopes the county’s case will prevail via summary judgment as well, but Virginia-based Freddie Mac recently filed a notice of removal, claiming diversity jurisdiction and the federal questions found in its charter. This will likely move the matter two blocks north to the U.S. District Court in the Northern District of Ohio.
Since both Fantozzi and Kovach retain licenses to practice in federal court, Summit County does not plan to hire outside counsel if the case ends up in federal court.
“The goal is to recover as much money for Summit County as we can,” Fantozzi said.
“We’ve looked at 80 years of federal law, and the statutory authority to claim this exemption isn’t there, Fannie and Freddie. You’ve got to start paying your taxes.”