Federal National Mortgage Association v. City of Chicago, No. 16-4140 (7th Cir. 2017)Annotate this Case
The Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation (Freddie Mac) are federally-chartered, privately-owned corporations, created by Congress to bolster the housing market. In 2008, the Federal Housing Finance Agency (FHFA) was appointed as conservator for both. Both purchase mortgages from third-party lenders, bundle them and sell mortgage-backed securities. When a borrower defaults, Fannie Mae or Freddie Mac forecloses and takes title to the property securing the loan, for sale to a private buyer. In 2013-2014, the buyers purchased Chicago property from Fannie Mae. Chicago imposes a Real Property Transfer Tax on the purchaser. The supplemental “CTA portion” of the transfer tax is paid by the transferor, unless the transferor is legally exempt, in which case the transferee is held responsible. The Illinois Department of Finance ruled that each buyer was liable for the tax. The district court held that the tax was preempted by the federal exemption statutes. The Seventh Circuit reversed. In 2013, the Seventh Circuit held that state and local taxing authorities could not charge Fannie Mae, Freddie Mac, or FHFA with transfer taxes because such taxes are preempted by federal laws exempting these entities from all taxation, but that reasoning does not apply when the tax is imposed on the purchaser.