Montgomery County considers lawsuit against Fannie Mae, Freddie Mac

The Montgomery County Council voted last week to pursue legal action against Fannie Mae and Freddie Mac for unpaid property transfer taxes, following the success of a similar effort in Michigan.

The county has tapped three law firms to look into a potential lawsuit against the mortgage giants: Greenberg & Bederman, based in Silver Spring, as well as Crongeyer Law Firm and Bird Law Group, both based in Atlanta.

Individuals and corporations who buy or sell real estate in Montgomery County are currently subject to a 1 percent transfer tax, according to Robert Hagedoorn, the county’s treasury chief. If, however, real estate is transferred from an individual to Fannie Mae or Freddie Mac — in the case of a foreclosure, for example —the mortgage finance companies are not required to pay a tax because they are considered government entities.

That may soon be changing, though.

“It was always our rule that [Fannie Mae and Freddie Mac] were government entities and therefore we wouldn’t tax them,” Hagedoorn said. “But it’s not necessarily clear whether that rule is going to stand.”

The law firms will spend the coming weeks auditing thousands of Montgomery County property transactions to get a sense of how much money Fannie Mae and Freddie Mac could owe, said Marc Hansen, county attorney. The team will also look into updating existing exemptions.

“We are definitely going to pursue back-taxes, but the bigger issue, of course, is setting a new precendent going forward,” Hansen said. “That could ultimately be much more valueable to the county than just collecting past taxes.”

Spokesmen for both Fannie Mae and Freddie Mac declined to comment for this story.

In March, a U.S. district judge ruled that Oakland County in Michigan was entitled to millions of dollars in unpaid transfer taxes on foreclosed properties between 2006 and 2011.

That decision is currently being appealed, but counties in Illinois, Ohio, South Carolina and other states have filed similar lawsuits against Fannie Mae and Freddie Mac.

It’s been a rough few years for the government-sponsored entities, which have received more than $190 billion in taxpayer-funded bailout money since the beginning of the recession.

Abha Bhattarai covers local banking, retail and hospitality for The Washington Post’s Capital Business section.
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