naked capitalism

I’ll be brief because this article from the Michigan Messenger (hat tip furzy mouse) stands on its own. Readers may recall that some registers of deeds (the county officials responsible for recording mortgage transfers) are less than happy at the way MERS has deprived their governments of income by skipping recording fees for some mortgage transfers (that was the point, after all) and making a mess of title records.

Two counties in MIchigan, Oakland and Ingham, have decided to do something about it. To my knowledge, this is the first litigation of this type:

Oakland County Treasurer Andy Meisner is suing mortgage giants Freddie Mac and Fannie Mae in the nation’s first federal lawsuit seeking to recoup tax payments never paid on properties that were transferred several times during the height of and during the foreclosure crisis that has gripped the nation over the last few years,

“I do think it’s fraudulent and I do think there is strong evidence to suggest there has been fraud. I do think it is a fraudulent conspiracy,” Meisner said. “We are identfying the people involved and we are systematically working to hold them accountable.”

While Ingham County Register of Deeds Curtis Hertel Jr. would not go so far as to allege a “fraudulent conspiracy” he says that the aim of his lawsuit is to find out just how deep the malfeasance went.

“This is about getting to the truth,” Hertel said Wednesday, standing in front of one of the many foreclosed and empty houses in the city of Lansing. “I believe the crisis has been further exacerbated by a systematic attempt to avoid state transfer taxes in my office.”

Hertel’s lawsuit alleges that the defendants and their agents claimed tax exemptions they were not entitled to. Specifically, the defendants are alleged to have claimed an exemption which prevents the federal government from having to pay the property title transfer company. The defendants claim that Freddie Mac and Fannie Mae are federal entities.

Meisner’s lawsuit alleges the same claim against just Freddie Mac and Fannie Mae.

“Defendants have not paid the Transfer Tax because they have claimed on the face of the documents they have recorded that the transaction is exempt from the Transfer Tax. They sometimes claim the transaction is exempt because they are government entities and, under Michigan statute, government entities are exempt. Other times they claim they are exempt pursuant to federal statute.

“Neither claimed exemption applies. Defendants are federally chartered private corporations and not government entities. Defendants’ federal law exemption from certain taxes does not include the Transfer Tax.”

Both Freddie Mac and Fannie Mae are publicly traded companies, according to their websites.

The official transfer tax rate for counties in Michigan is $1.10 for every $1,000 of value being transferred. So the sale of a $100,000 home would typically carry a $1,100 tax. State taxes on the same transactions stretch even further – $7.50 for every $1,000 of value being transferred.

Those taxes add up, both officials said in interviews. Meisner says Oakland County has lost about $1.5 million from its general fund in the last six years, while those same cases in Oakland meant an estimated $10.5 million kept from the state. Hertel would not put an exact dollar figure on the potential losses caused by the alleged actions of the defendants, but said the county had lost “millions” while the state had lost “tens of millions” in tax revenues.

Update: Reader IF points out the computation in the article regarding the typical fee per transfer is wrong. If the $1.10 per $1000 is correct, the fee would be $110, which even then is on the high side of what I have heard recording fees often are (the question is whether the “transfer tax” is a different beast than a recording fee, and whether it might actually be $1.10 per $100, which would make the $1,100 charge correct). I look to Michiganders to provide input.