With cash-strapped states and counties feeling increasing budgetary pressure, lawsuits seeking to collect real estate transfer taxes from Fannie Mae and Freddie Mac are popping up all over the nation. In the wake of the economic downturn, Fannie Mae and Freddie Mac have acquired vast portfolios of properties. It’s no wonder states have their eyes on the enormous possible revenue to be collected from real estate transfers. In Pennsylvania, however, local governments will have to look elsewhere.
In March 2013, Judge Gene Pratter of the United States District Court of the Eastern District of Pennsylvania, held that because Fannie Mae, Freddie Mac (and their conservator, the Federal Housing Finance Agency) are statutorily exempt from “all taxation” under federal law, they are not required to pay the Pennsylvania Realty Transfer Tax. This decision joins a growing line of federal district court cases that reject the reasoning of a March 2012 opinion from Eastern District of Michigan, which held that the same statutory exemption extended only to direct taxes, and not excise taxes such as real estate transfer taxes.
Thirty-nine states have real estate transfer tax regimes or allow local governments to impose a transfer tax, and similar suits by local governments are pending in dozens of courts. If other courts decide to adopt Michigan’s approach, enormous tax liability for Freddie Mae and Fannie Mac could result, estimated to be in the billions of dollars. It appears, however, that the tide has turned against the challengers on this question, and states will not be able to draw from Fannie and Freddie’s deep pockets.