WE’RE HEARING some good news for Fannie Mae and Freddie Mac in regard to the payment of state and local transfer taxes on the sale of real estate, typically foreclosed homes. The bottom line here in Michigan is that Fannie/Freddie does not have to pay the transfer taxes. So says the U.S. Court of Appeals for the Sixth Circuit in a recent decision in County of Oakland v. Federal Housing Finance Agency. This appellate decision overruled an earlier decision from the Federal District Court which had held Fannie/Freddie did have to pay the transfer taxes.
The bottom line here is revenue. The transfer tax in Michigan is shared between the state and local counties. The tax is imposed on the sale of real estate and is based on the sales price. The tax comes to almost nine dollars per thousand dollars of consideration so that on a $100,000 sale the state and county where the property sold share about $900. Multiply that by the number of foreclose sales and it adds up to a lot of lost revenue needed by the state and counties.
One county in particular, Oakland County, claimed in its motion papers that it was owed millions by Fannie/Freddie. Well to replace that revenue the county will need to come up with a plan B or perhaps appeal the decision to the U.S. Supreme Court. In general taxes and fees related to real estate transactions are not too popular here in Michigan, especially compared to other states. We are business friendly. There is no mortgage recording tax and the fees to record deeds, mortgages and similar documents are low compared to some other states.
Speaking of revenue for local governments, we are also hearing that if you want to record a deed for property located in Chicago you had better be current on the payment of your water bill. Never mind about shutting the water off. This practice helps the city get paid what it is owed when a house sells. This is something I just ran into when I had an Illinois attorney prepare a deed for one of my clients.
Have you shopped for homeowners insurance lately? I just signed an application and had to answer some questions I found interesting. The insurance company wanted to know if I had been convicted of arson within the last five years. I guess if an arsonist is clean for over five years they are considered reformed when it comes to insurance. Also the insurance company wanted to know if the real estate taxes on the property were current and if there had been a foreclosure lately.
You need to be real careful when you complete an insurance application because if you say X and it is untrue then a future claim can be denied. How am I supposed to know if the taxes are current and whether there was a prior foreclosure? Sure I know how to find out by looking into the public records but what about the average consumer. Lenders may want to look into this practice since they are insured up to the value of the mortgage and do not need a claim denied by some tricky technicality.
Based in Chelsea, Mich., John McDermott is a real estate and elder care attorney who represents both consumers and businesses. He can be emailed at
