Washington County will join other Minnesota counties in a class action suit brought by Hennepin County against Fannie Mae and Freddie Mac after the Board of Commissioners authorized joining the lawsuit Tuesday.
One result of the downturn of the U.S. economy is increased numbers of home mortgage foreclosures, which, in turn, has transferred ownership of many homes to Fannie Mae and Freddie Mac.
The Federal National Mortgage Association, commonly known as Fannie Mae, was founded in 1938 during the Great Depression as a government-sponsored enterprise as part of the New Deal. Fannie Mae has been a publicly traded company since 1968.
Fannie Mae’s purpose is to expand the secondary mortgage market by securitizing mortgages in the form of mortgage-backed securities. The Federal Home Loan Mortgage Corporation (FHLMC), known as Freddie Mac, was created in 1970 for the same purpose.
When these two entities record its ownership, it refuses to pay the deed tax, claiming it is exempt from the tax. However, its exemption from the tax is less than clear, and Hennepin County instituted a class action lawsuit on behalf of the 87 Minnesota counties to challenge this exemption.
Hennepin County estimates Freddie Mac and Fannie Mae owe approximately $10 million to $11 million in deed tax. However, 97 percent of any recovery would go into state coffers, leaving 3 percent to be distributed among the 87 counties.
However, Hennepin County states it will pay all costs unless it obtains a favorable judgment, in which case it will recover costs proportionately from any judgment. While the amount Washington County might receive from any judgment is small, it appears nearly all of the counties are joining the class to resolve a significant issue, which is whether Freddie Mac and Fannie Mae are obligated to pay these “transfer” taxes.