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.
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“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.”
Math tells me it would be a USD 110 tax. The rest seems reasonable.
Unfortunately, I have to leave the quote as is, but your math looks correct, and transfer fees are typically of that magnitude or lower.
In PA, transfer tax is assessed only upon the sale of the real estate not on a refinance. Recording fees would still be required but probably no more than a few hundred dollars per transaction.
I’d also be interested to know on the refi’s where the county was not paid the appropriate fees, whether the borrower was still charged this fee on the HUD settlement statement. I.E.- was the borrower inappropriately charged a county recording fee on these refinancing deals if there was no payment to the county from the title company?
BTW- a quick Google search seemed to verify the county transfer tax rate of $1.10 per $1,000 (stated as $.55 per $500). But interestingly, the state transfer tax rate appears to be almost seven times higher than that(stated as $3.75 per $500). So it seems that whatever amounts the counties were screwed out of, the state lost 7.5 times more because of these misreported transactions. Like Michigan could really afford that, right?
I was hoping that a better informed Michigan resident than I am would step in, but here’s my take. I’ll confirm that anon48’s math is correct. As far as the transfer tax rates being somewhat on the high side, it was explained to me once by a realtor that the rates used to be quite a bit lower until after the Headlee Amendment (1978) to the state constitution was passed. The Headlee amendment capped annual property tax increases in certain ways, and apparently the real estate transfer tax fees were increased in order to make up for some of the lost revenue.
I’m shocked (yet pleasantly surprised) that Michigan is actively starting to go after the fraudclosure players. It’s too much to go into right now, but it appears that a split is forming in both the Republican and Democratic parties over how they should deal with foreclosure abuses. Before a few months ago, Michigan (a non-judicial state) in general was very much in the “nail the foreclosure notice on the front door and auction the house on the courthouse steps” assembly line mode. I’m hoping my state is a sleeping giant that’s starting to wake up, but it’s more likely that pro-homeowner court cases will be overturned and investigations will supposedly come up empty-handed.
The continuing story on MERS tax avoidance often confuses mortgage taxes and mortgage transfer fees. Intuitively, there would seem to be no way to avoid the mortgage tax, which is payable when a mortgage is first recorded. Recording is necessary to defeat claims of subsequent purchasers, and I doubt any of these mortgages were not recorded. Mortgage transfer tax is payable when the mortgage itself is transferred during the securitization process. (Securitization demands successive transfers of the note to avoid potential bankruptcy problems affecting originators. Apparently, the lawyers were not so clueless about what originators were doing to create all those MBS) Well, some may argue, couldn’t the industry just transfer the note and leave the mortgage in the name of the originator? There is some law about this to the effect that “the mortgage follows the note”, but I believe that only means that foreclosure remedies are available only to the note holder.
Does anyone have hard information about this?
The problem is attrition and numbers, if one ventures into a rich county, say on the East Coast somewhere, it will largely be people with limited access, more often will be non-white, and most importantly they will be poor. Presumably, you won’t have a clueless public bureaucrat leap up and offend his wealthy paymasters. After Lois Lane at the New York Times blames Fannie Mae (her writing is partly insidious propaganda, and consistent with most of the MSM’s directive, that the people must be convinced of a non-existent separation of Government and Big Finance) for everything. Fannie Mae is now being put up for sacrifice to protect terrorists bankers like Jamie Dimon.