Ruling Will Throw Non-Judicial Foreclosure States Into Chaos
“This is what I wished for, just isn’t how I envisioned it” -Eminem
Yesterday’s ruling from the 6th Circuit Court of Appeals, the 4th Circuit Court of Appeals and last month’s ruling from U.S. District Judge Robert Holmes Bell from the Western District of Michigan saying that because Fannie Mae and Freddie Mac were chartered by congress and because they are now under government control due to their government bailout, they are exempt from all forms of state and local taxes. So courts are saying is that Fannie Mae and Freddie Mac are entities of the United States government and are entitled to any exemptions to any state and local taxes.
These exemptions were the heart of multiple lawsuits filed by multiple counties in Michigan including Oakland County. Every mortgage assignment filed with Register of Deeds offices across the Michigan assigning mortgages to or from Fannie Mae and Freddie Mac claims a tax exemption as a “government entity” under Michigan Statutes MCL 207.526(h)(i) and MCL 505 (h)(i). The argument is that although chartered by congress and are now under the oversight of the U.S. Treasury since 2008 (FHFA answers to The U.S. Treasury), Fannie Mae and Freddie Mac were privatized by congress nearly a generation ago and are no different than Ally Financial, Citibank or General Motors who received TARP bailouts. The courts disagreed saying that because Fannie Mae and Freddie Mac were chartered by congress and their respective charters say they are exempt from all state and local taxes and because of this are “government entities”.
Oakland County Treasurer Andy Meisner who was the plaintiff in the case has vowed to take this fight to the U.S. Supreme Court. However, having the court agree to hear the case will depend if other states like Maryland, who lost a similar argument in the 4th District Court of Appeals decide to petition the Supreme Court as well.
Although the fight that Meisner and Ingham County Register of Deeds Curtis Hertel, Jr. took on may or may not end up at the U.S. Supreme Court, they had the brass cojones to stand up for the taxpayers of Michigan against the broken status quo of malaise and apathy that has poisoned American politics for the past twenty years.
“I love it when a plan comes together!” -Colonel “Hannibal” Smith
As Ed DeMarco and the boys at FHFA are the toasting their victory over Michigan taxpayers by shucking oysters and drinking bottles of Grey Goose at the Old Ebbitt Grill for the next few days, they need to rethink what they are actually celebrating because their exuberance may be premature.
No, I’m not talking about Andy Meisner’s vow to take the fight to U.S. Supreme Court, I am talking about the Pandora’s Box of a constitutional crisis that the federal courts have opened up on non-judicial and the utter chaos it will that will create for the courts in these states.
Attorneys for FHFA may be popping the bubbly because two federal Court of Appeals have upheld the fact that both Fannie Mae and Freddie Mac are in fact government entities and they can enjoy the privileges of such a tax-free status, but what they fail to realize is they have inadvertently barred Fannie Mae and Freddie Mac from foreclosing on homeowners in Michigan and homeowners in other non-judicial states from foreclosing non-judicially because it denies them their due process rights under the Fifth Amendment to the U.S. Constitution. This of course would create a nightmare scenario for FHFA on multiple levels.
First, Fannie Mae, Freddie Mac and their servicers who they assign a temporary ownership to must foreclose judicially. This means that Fannie Mae, Freddie Mac or the servicer would have to sue the homeowner to take possession like they do in Florida, New Jersey, New York and Pennsylvania. A judicial foreclosure also makes it easier and less expensive for the homeowner to defend against the foreclosure because the cost and burden of proof is now shifted to the Fannie Mae and Freddie Mac.
Second, this opens the door for homeowners in non-judicial foreclosure states who have been non-judicially foreclosed on by Fannie Mae or Freddie Mac to bring damage lawsuits against Fannie Mae and Freddie Mac for violating their civil rights.
Although local politicians are considering this a defeat for taxpayers on the local level, it’s hardly that. It’s a big win for homeowners in non-judicial states and could very well be the catalyst that lights a fire under the chairs of Do-Nothing politicians in state legislatures cross the U.S. and in Congress to do something about reforming the broken financial industry in this country with Hertel and Meisner going down in history as the Hannibal Smiths of American politics.