Political Ambitions Could Cost Michigan School Aid Fund $200 Million

Steve Dibert, MFI-Miami

Last year while doing research for my client, Lynne Lucas, her attorney and I discovered many problems with the way Orlans Associates handled her for foreclosure including robo-signing, document fraud, etc. and this led to other major issues when it comes to Fannie Mae and Freddie Mac.

Unpaid Taxes By Fannie Mae
Fannie Mae Chairman Mike Williams

My staff at MFI-Miami discovered that Orlans Associates and Trott & Trott, two of the biggest foreclosure mills in Michigan, were exploiting the ignorance of Michigan Treasury officials who under the false impression that Fannie Mae and Freddie Mac were government agencies.  They also exploited the inability of the County Register of Deeds offices across Michigan to refuse the recordation of documents.

They exploited this by stating on property transfer affidavits and other documents a tax exemption under Michigan law that exempts government agencies from having to pay the Michigan Real Estate Transfer Tax.

Orlans Associates and Trott & Trott claim on thousands of documents they have filed across Michigan that both Fannie Mae and Freddie Mac are government agencies due to their status as a Government Sponsored Enterprises or GSEs.  Therefore, they claim any mortgage servicers assigning properties to or from Fannie Mae or Freddie Mac are exempt from paying the Michigan Real Estate Transfer Tax.

However, this contradicts what executives from both Fannie Mae and Freddie Mac have acknowledged in depositions and in public since the 1990s that they are not government agencies.  Fannie Mae was privatized in 1968 and Freddie Mac was privatized in 1980.  Even now in this post economic apocalypse era we live in, they are still considered private companies with the federal government owning the majority of the stock.

As my staff began looking at the dollar amounts that are owed to the state and the counties, I was shocked at the dollar amount.  Given Michigan’s economic problems, I was more surprised that the Michigan Department of Treasury who has a reputation for pursuing business owners for not paying state sales taxes like mafia capos, had not used their resources to collect this money.  After all, the banks along with Fannie Mae and Freddie Mac have cheated the state out of roughly $1.2 billion in unpaid state and county Real Estate Transfer Taxes since 1999.  Yes, that is billion with a “B”.

Banks Defrauded Michigan School ChildrenNaturally after making this discovery, I reached out to several Registers of Deeds across Michigan. My thought was they would be eager to pursue this money since their counties were defrauded out of millions of dollars.  I also figured regardless of party affiliation, these elected officials would want to look like heroes to their respective county taxpayers.  After all, most this money deprived the state School Aid Fund of much needed revenue. Besides, other than pedophiles, politicians are the only other group of people who can’t resist the urge to get their picture taken hugging kids and retrieving hundreds of millions for the School Aid Fund made a great reason for a great photo opportunity.

As shocked as I was by the fact of the dollar amounts that was defrauded from Michigan tax payers, I was even more shocked by the reception I received when I approached these Registers of Deeds.   The reaction was either a lack of interest because they didn’t understand it or down right hostility.  One County Register of Deeds in Northern Michigan called me a Communist for suggesting that banks would commit tax fraud.  It was apparent she hadn’t picked up a newspaper since the Reagan administration or a fashion magazine since the Nixon Administration.

Eventually I did find a County Register of Deeds, who did listen and actually understood what was going on because unlike most of his colleagues, he had been following what Essex County Register of Deeds John O’Brien was telling the media in Massachusetts and what Guilford County Register of Deeds Jeff Thigpen was telling any one that would listen to him in North Carolina.

After giving him the Reader’s Digest version of Mortgage Funding 101, Ingham County Register of Deeds, Curtis Hertel, Jr. felt strongly enough to proceed with legal action against the banks, several foreclosure mills, Fannie Mae, Freddie Mac and MERS for failure to pay state and county real estate transfer taxes on properties in Ingham County.

As the lawyers prepared the lawsuits for Ingham County, I learned that one county had been listening to what I had been trying to tell Register of Deeds across Michigan and it wasn’t a County Register of Deeds.

On June 20, 2011, in a mad rush to get his name in the media and for the sake of helping his own political career, Oakland County Treasurer Andy Meisner filed a lawsuit in federal court against Fannie Mae and Freddie Mac., Meisner filed his lawsuit against Fannie Mae and Freddie Mac in US District Court in Detroit to retrieve only Oakland County’s portion of the unpaid tax going back to 2005.

The information Meisner used as the basis for his lawsuit was from an informational packet that I and two other attorneys were showing Registers of Deeds in May 2011.   Anticipating that the information was more than likely going to be leaked to other attorneys, any information about naming the foreclosure mills or the lenders was left out of the handout.

Although this information was omitted from the printed material, it was verbally disclosed to the Registers of Deeds.  So if you weren’t at any of the meetings, you wouldn’t know the other half of the plan.  Meisner never attended any of those meetings and neither did Oakland County Register of Deeds Bill Bullard.

Although a dollar amount was not named in the Oakland County lawsuit, Meisner was quoted in Crain’s Detroit Business on June 20th as saying that Fannie Mae and Freddie Mac owe $1.85 million to Oakland County and $10.8 million to the state of Michigan for the 5 year period.

Several days later, Ingham County filed their lawsuit.  However, unlike the Oakland County lawsuit, Ingham County’s lawsuit not only names Fannie Mae and Freddie Mac but names the major banks, Trott & Trott, and Orlans Associates.  The foreclosure mills were named because they were responsible for filing these documents with the counties and the affidavits bear the alleged signature of their attorneys.

Ingham County also sued to retrieve the state portion of the transfer tax that would have been collected by either the Ingham County Register of Deeds or the Ingham County Treasurer.  MFI-Miami estimates that if Ingham County is successful in their lawsuit, they could receive as high as $35 million in unpaid state and county transfer taxes from all the defendants in the case.

There is also a big cloud of mystery as to why Oakland County didn’t name the banks or the foreclosure mills in their suit.  Fannie Mae and Freddie Mac’s portion of the unpaid transfer tax is only 15% of what is owed to the counties and the state of Michigan.  The $1.85 million owed by Fannie Mae and Freddie Mac also appears to be a low balled number.  MFI-Miami estimates the amount owed to Oakland County by Fannie Mae and Freddie Mac from 2005 through 2010 is closer to $5 million.

When asked by Kathleen Gray from the Detroit Free Press in June of 2011, Meisner was quoted as saying, “not all of those lost revenues can be attributed to mortgage companies avoiding the transfer tax.”

Contrary to what Meisner has been telling the media, had Oakland County filed a similar suit to the one Ingham County filed, Oakland County could have potentially received over $125 million in unpaid state and county transfer taxes from the banks, Fannie Mae, Freddie Mac, and the foreclosure mills going back to 1999.

Oakland County’s attorney, William Horton from Giarmarco, Mullins and Horton also filed a motion for Summary Judgment with the initial complaint.  Under federal court rules this prevents them from filing an amended complaint requesting the state’s portion of the transfer tax.  This means that if Oakland County is successful at their hearing scheduled for later this week, that they will only able to collect roughly $1.85 million instead of a potential $18 million they could have collected for the past 11 years.

Ingham County’s suit could fetch as high as $5.85 million for Ingham County, which has a third of the population of Oakland County.

If the counties are successful with their lawsuits, Meisner is going to have to answer the embarrassing question of why smaller counties demanded and received more money than Oakland County.

In November of 2011, Genesee County Treasurer, Deborah Cherry filed a similar suit as the one Meisner filed.  She is also using William Horton from Giarmarco, Mullins and Horton as the counsel for Genesee County.  This time, Horton named the Federal Housing Financial Agency (FHFA), the government agency created to oversee Fannie Mae and Freddie Mac, as a co-defendant. He also filed it as a potential class and like the Oakland County lawsuit only seeks the Transfer tax money owed the counties not the state.

The Genesee suit like the Oakland County suit only encompasses 15% of the total amount owed to the counties.  Like the Oakland County lawsuit, there is a cloud of mystery why Genesee County would only go after Fannie Mae and Freddie Mac.

If the counties are successful with their lawsuits, Cherry like Meisner will be forced to answer the embarrassing question of why smaller counties demanded and received more money than Genesee County.

So why did Oakland County and Genesee County omit the banks from their lawsuits? The answer is politics and legal ethics.

Both Cherry and Meisner are career Democratic politicians with backgrounds in the Michigan legislature and both understand the power and influence the Michigan Bankers Association, the Michigan Association of Realtors and their allies can have on their future political ambitions especially Andy Meisner, who has his sights on becoming governor or representing Michigan in Washington.

Unfortunately for Meisner, he dropped the ball. In his mad rush to be first to file a lawsuit to collect this money, Meisner lost out on collecting potentially another $8 million in lost county tax revenue from 2005 to the end of 2010 by not including the banks in his lawsuit.

If Oakland County and Genesee County had pursued the state’s portion of the tax and been successful in retrieving the state’s portion of the Transfer tax in their suit going back to 1999, these two counties alone would be holding nearly $200 million for the state of Michigan.

By not suing for the state of Michigan’s portion of the Transfer tax; both Meisner and Cherry let a golden opportunity slip from their fingers by forfeiting any leverage they may have gotten to negotiate with the Governor’s office and the Republican controlled legislature.  This money would have given the two counties power to demand how this money would be spent by the legislature or make demands when it comes to revenue sharing dollars.

After all, he who holds the gold, makes the rules.  Unfortunately, Michigan’s children will be affected because Andy Meisner wanted to take a short cut at being a hero and Deb Cherry wanted to play it safe.

Unless, the Michigan Department of Treasury under the leadership of former Michigan House Speaker Andy Dillion decides to pursue this lost revenue, Michigan’s School aid Fund could lose out on $200 million.

Suing the banks raises an ethical dilemma for Giarmarco, Mullins and Horton because they already represent several of the banks named in the Ingham and Branch County lawsuits.  Their website states:

 Our banking and finance attorneys offer a full range of services. For example, they: 

This leads to another question, why would Oakland County and Genesee County hire Giarmarco, Mullins and Horton if they represent the very same banks and lenders who have defrauded over a billion dollars from Michigan taxpayers?

The best people to ask are Andy Meisner and Deborah Cherry.  Give them a call and ask them.

Andy Meisner can be reached at 248.858.0611 and Deborah Cherry can be reached at 810.257.3059

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