A federal district court judge has dismissed a county recorder lawsuit against MERS and several MERS member financial institutions, calling the claims "far-fetched" and based on "inaccurate statements of the law." The lawsuit, which was filed by Curtis Hertel and Nancy Hutchins, the county recorders in Ingham County and Branch County, Michigan on behalf of all Michigan counties, alleged that MERS and its member banks were improperly claiming exemptions from the state's county real estate transfer tax.
United States District Court Judge Robert Holmes Bell of the Western District of Michigan issued the decision on May 3rd.
The judge found that the county recorders did not have standing to bring the lawsuit on behalf of their county-- under Michigan law, only the county board of supervisors has authority to bring a lawsuit on behalf of a county. The judge said that ordinarily, he might be inclined to allow the county recorders to amend their complaint to include the proper parties as plaintiff; however, in this case, he declined to do so, because he determined that the case should also be dismissed because the claims lacked merit, and would fail even if the proper plaintiffs were included.
On the case's merits, the judge ruled that MERS and its member banks did not owe transfer taxes on any of the more than twenty transactions in which MERS allegedly claimed an improper exemption from the transfer tax. The judge declined to allow the counties to continue "fishing" for additional examples of alleged improperly claimed exemptions by combing their counties' land records.
The judge grouped the allegations against MERS and the banks into three general categories, and found that for each category, MERS and the banks did not owe transfer tax.
The county recorders claimed, for instance, that MERS and the banks owed the transfer tax on mortgage assignments that took place after the default on a mortgage, because after a default, they claimed that mortgage assignment transfers include a transfer of the power of sale and therefore are taxable. The judge disagreed, ruling that a mortgage is still a security interest after a default. Michigan's county transfer tax law explicitly exempts transfers of security interests from the transfer tax.
Also, the county recorders claimed that transfer taxes were owed on various transfers evidenced by quit claim deeds which listed nominal consideration of under $100. The county recorders pointed to the fact that all of the properties involved in these transfers then sold for hundreds of times more than the consideration listed in the deed. They cited a provision in the transfer tax law that states that written instruments subject to the transfer tax must list the value of the property, and claimed that MERS and the banks were violating the provision.
The judge again disagreed. He noted that quit claim deeds showing consideration less than $100 are expressly exempted from the transfer tax, and the quit claim deeds were not fraudulent in stating the nominal amount of consideration rather than the value of the property, because the deed did not evidence sales of the property, but rather merely transfers from mortgage servicers back to the bank.
Finally, the counties claimed that the several transfers in which Fannie Mae and Freddie Mac were the grantors should not have been exempt from the tax. Once again, the judge disagreed, finding that Fannie Mae and Freddie Mac were exempt from the transfer tax by virtue of an unambiguous exemption created in the federal code. Just last week, another federal court dismissed a suit by Montgomery County, Maryland which contained similar allegations that Fannie Mae had improperly taken transfer tax exemptions.