Michigan counties file unprecedented foreclosure fraud suits

Two Michigan counties, Oakland and Ingham, are suing some of the biggest players in the mortgage industry for what one official called a “fraudulent conspiracy” to avoid paying state and county property transfer taxes.

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.

Meisner says Oakland county has lost $14 billion in tax revenues because of the declining property values caused by the market collapse and foreclosure crisis. “It will take decades to recover those values,” Meisner said.

The Michigan Department of Treasury did not return emails inquiring about the lawsuits.

Kym Spring, who runs Kent County’s Foreclosure Response organization, praised the lawsuits.

“I am really delighted to know that some of these leaders in Michigan are taking this on,” she said, noting the continued battle in Washington over the appointment of a director for the Bureau of Consumer Financial Protection. She noted the Bureau itself, which was created by the Dodd-Frank Act, is under assault with some lawmakers attempting to disband it.

David Holtz, executive director of Progress Michigan, also praised the legal actions.

“Michigan families, many through no fault of their own, continue to lose their homes to the banks they helped bail out,” he said. “They deserve to know the truth about why and if these lawsuits help, then it is more than worth it.”