In a typical real estate transaction, the seller is obligated to pay state and county real estate transfer taxes at the time of closing. The tax is based upon the sale price of the property: state transfer tax is equal to $7.50 for every $1,000 in purchase price, and county transfer tax is equal to an additional $1.10 for every $1,000 in purchase price. But in residential transactions where Fannie Mae and Freddie Mac were the sellers, the transfer tax burden was unclear. Although Fannie Mae and Freddie Mac insisted that they were government agencies exempt from transfer taxes, multiple counties and states claimed otherwise and refused to record deeds, resulting in sales contract addenda shifting the potential tax obligation to the buyers in those transactions.
In 2011, Oakland County sued Fannie Mae and Freddie Mac in federal court to recover transfer taxes in transactions where they were the sellers of real property. The case, County of Oakland v. Federal Housing Finance Agency, was among several class action lawsuits brought by counties in Michigan and in other states to recover the taxes claimed to be due. Eventually, the United States Sixth Circuit Court of Appeals (which covers Michigan, Ohio, Kentucky and Tennessee) ruled in favor of Fannie Mae and Freddie Mac, holding that when Congress exempted the agencies from “all taxation,” real estate transfer taxes were included.
Since the ruling, there has been a debate as to whether buyers who paid transfer taxes would be eligible for a refund under Michigan law in the same manner as a seller who unnecessarily or erroneously paid the tax. In response, the Michigan Department of Treasury created a mechanism allowing affected buyers to apply for a refund of transfer taxes paid on transactions involving Fannie Mae and Freddie Mac. To obtain a refund, the buyer must have purchased a residential property from Fannie Mae or Freddie Mac and provide the following documents:
A copy of the HUD-1 Settlement Statement showing that the transfer taxes were charged to the buyer,
A copy of the recorded deed containing the tax stamp.
The Michigan Department of Treasury recently added to its website instructions and a refund form that affected buyers may use to apply for transfer tax refunds on their purchases of property from Fannie Mae and Freddie Mac.
Varied mechanisms have also been created at the county level related to refund requests for county transfer taxes.
For additional information regarding eligibility for a refund and the application process, please contact a member of Berry Moorman’s Real Estate Practice Group.