Montgomery Cnty. v. Fed. Nat'l Mortg. Ass'n, s. 13–1691

• Court: United States Courts of Appeals. United States Court of Appeals (4th Circuit)
• Writing for the Court: NIEMEYER
• Citation: 740 F.3d 914
• Parties: MONTGOMERY COUNTY, MARYLAND, on behalf of itself and all others similarly situated, Plaintiff–Appellant, v. FEDERAL NATIONAL MORTGAGE ASSOCIATION, a corporation; Federal Home Loan Mortgage Corporation, a corporation; Federal Housing Finance Agency, a federal agency, as conservator for Federal National Mortgage Association and Federal Home Loan Mortgage Corporation, Defendants–Appellees, United States of America, Intervenor. Dale L. Butts, as Register of Deeds of Beaufort County, South Carolina, individually and on behalf of all others similarly situated; John Hopkins, as Register of Deeds of Richland County, South Carolina, on behalf of himself and all others similarly situated, Plaintiffs–Appellants, and Gail Laney, as Register of Deeds of Orangeburg County, on behalf of themselves and all others similarly situated; James B. Hiers, as Register of Deeds and Clerk of Court of Bamberg County, on behalf of themselves and all others similarly situated; Rhonda McElveen, as Register of Mesne Conveyances and Clerk of Court of Barnwell County, on behalf of themselves and all others similarly situated; Charlie Lybrand, as Register of Mesne Conveyances of Charleston County, on behalf of themselves and all others similarly situated; Timothy Nanney, as Register of Deeds of Greenville County, on behalf of themselves and all others similarly situated; Ballery Skipper, as Register of Deeds of Horry County, on behalf of themselves and all others similarly situated; David Adams, as Treasurer of Richland County, on behalf of themselves and all others similarly situated, Plaintiffs, v. Federal National Mortgage Association, a/k/a Fannie Mae, a federally chartered private corporation; Federal Home Loan Mortgage Corporation, a/k/a Freddie Mac, a federally chartered private corporation, Defendants–Appellees, Federal Housing Finance Agency, Conservator of Federal National Mortgage Association; Conservator of Federal Home Loan Mortgage Corporation, Intervenor/Defendant–Appellee, United States of America, Intervenor.
• Docket Number: Nos. 13–1691,13–1752.,s. 13–1691
• Decision Date: 27 January 2014

740 F.3d 914

MONTGOMERY COUNTY, MARYLAND, on behalf of itself and all others similarly situated, Plaintiff–Appellant,
v.
FEDERAL NATIONAL MORTGAGE ASSOCIATION, a corporation; Federal Home Loan Mortgage Corporation, a corporation; Federal Housing Finance Agency, a federal agency, as conservator for Federal National Mortgage Association and Federal Home Loan Mortgage Corporation, Defendants–Appellees,
United States of America, Intervenor.
Dale L. Butts, as Register of Deeds of Beaufort County, South Carolina, individually and on behalf of all others similarly situated; John Hopkins, as Register of Deeds of Richland County, South Carolina, on behalf of himself and all others similarly situated, Plaintiffs–Appellants,
and
Gail Laney, as Register of Deeds of Orangeburg County, on behalf of themselves and all others similarly situated; James B. Hiers, as Register of Deeds and Clerk of Court of Bamberg County, on behalf of themselves and all others similarly situated; Rhonda McElveen, as Register of Mesne Conveyances and Clerk of Court of Barnwell County, on behalf of themselves and all others similarly situated; Charlie Lybrand, as Register of Mesne Conveyances of Charleston County, on behalf of themselves and all others similarly situated; Timothy Nanney, as Register of Deeds of Greenville County, on behalf of themselves and all others similarly situated; Ballery Skipper, as Register of Deeds of Horry County, on behalf of themselves and all others similarly situated; David Adams, as Treasurer of Richland County, on behalf of themselves and all others similarly situated, Plaintiffs,
v.
Federal National Mortgage Association, a/k/a Fannie Mae, a federally chartered private corporation; Federal Home Loan Mortgage Corporation, a/k/a Freddie Mac, a federally chartered private corporation, Defendants–Appellees,
Federal Housing Finance Agency, Conservator of Federal National Mortgage Association; Conservator of Federal Home Loan Mortgage Corporation, Intervenor/Defendant–Appellee,
United States of America, Intervenor.

Nos. 13–1691, 13–1752.

United States Court of Appeals,
Fourth Circuit.

Argued: Dec. 11, 2013.
Decided: Jan. 27, 2014.

[740 F.3d 917]

ARGUED:Don Springmeyer, Wolf Rifkin Shapiro Schulman & Rabkin, LLP, Las Vegas, Nevada, for Appellants. Michael Alexander Johnson, Arnold & Porter, LLP, Washington, D.C., for Appellees. Patrick J. Urda, United States Department of Justice, Washington, D.C., for Intervenor. ON BRIEF:Howard N. Cayne, Asim Varma, Dirk C. Phillips, Arnold & Porter LLP, Washington, D.C., for Appellee Federal Housing Finance Agency. Jill Nicholson, Chicago, Illinois, Michael D. Leffel, Foley & Lardner LLP, Madison, Wisconsin, for Appellee Federal National Mortgage Association. Michael J. Ciatti, Merritt E. McAlister, King & Spalding LLP, Washington, D.C., for Appellee Federal Home Loan Mortgage Corporation. Kathryn Keneally, Assistant Attorney General, Tamara W. Ashford, Principal Deputy Assistant Attorney General, Gilbert S. Rothenberg, Jonathan S. Cohen, Tax Division, United States Department of Justice, Washington, D.C.; Rod J. Rosenstein, United States Attorney, Baltimore, Maryland, William J. Nettles, United States Attorney, Office of the United States Attorney, Columbia, South Carolina, for Intervenor.

Before TRAXLER, Chief Judge, and NIEMEYER and DUNCAN, Circuit Judges.

Affirmed by published opinion. Judge NIEMEYER wrote the opinion, in which Chief Judge TRAXLER and Judge DUNCAN joined.

NIEMEYER, Circuit Judge:

The question presented in these appeals is whether the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”) are exempt from the payment of state and local taxes imposed on the transfer of real property in Maryland and South Carolina. Fannie Mae and Freddie Mac claim that they are exempt from such transfer taxes under 12 U.S.C. §§ 1723a(c)(2) and 1452(e), respectively. Counties in Maryland and South Carolina (the “Counties”), however, which collect transfer taxes, claim (1) that those exemptions do not, as a matter of statutory interpretation, apply to state and local taxes relating to real property, including transfer taxes, and (2) that, in any event, exempting Fannie Mae and Freddie Mac from state and local transfer taxes for real property would be unconstitutional as an infringement on the States' taxing power.

The district courts in Maryland and South Carolina rejected the Counties' arguments, concluding that the general tax exemptions applicable to Fannie Mae and Freddie Mac, while not applicable to real property taxes, did cover real property transfer taxes, thus making a distinction between property taxes and transfer taxes. The courts also concluded that Congress, in providing the tax exemptions to Fannie Mae and Freddie Mac, acted within its Commerce Clause power.

We agree with the district courts, as explained herein, and affirm.

I

Congress created Fannie Mae during the Great Depression to provide banks

[740 F.3d 918]

with more capital for mortgage lending. See generally Richard W. Bartke, Fannie Mae and the Secondary Mortgage Market, 66 Nw. U.L.Rev. 1 (1971). Its charter describes its purposes as follows:

The Congress declares that the purposes of this subchapter are to establish secondary market facilities for residential mortgages, to provide that the operations thereof shall be financed by private capital to the maximum extent feasible, and to authorize such facilities to-

(1) provide stability in the secondary market for residential mortgages;

(2) respond appropriately to the private capital market;

(3) provide ongoing assistance to the secondary market for residential mortgages ... by increasing the liquidity of mortgage investments and improving the distribution of investment capital available for residential mortgage financing;

(4) promote access to mortgage credit throughout the Nation ... by increasing the liquidity of mortgage investments and improving the distribution of investment capital available for residential mortgage financing; and

(5) manage and liquidate federally owned mortgage portfolios in an orderly manner, with a minimum of adverse effect upon the residential mortgage market and minimum loss to the Federal Government.

12 U.S.C. § 1716. While Fannie Mae was originally created as a government corporation, Congress split it in 1968, creating the Government National Mortgage Association (“Ginnie Mae”), which remains a government corporation, and privatizing Fannie Mae.

Freddie Mac was established by Congress in 1970 as a private corporation to compete with Fannie Mae, and its charter describes similar purposes. See12 U.S.C. § 1451 note.^*

Fannie Mae and Freddie Mac carry out their missions by purchasing mortgages originated by third-party lenders, pooling the mortgages into investment instruments, and selling those mortgage-backed securities to raise capital for further purchases. By providing capital to lenders, these activities promote access to mortgage credit throughout the Nation and stabilize the secondary market for residential mortgages.

Congress has exempted Fannie Mae and Freddie Mac generally from state and local taxes, “except that any real property of [either Fannie Mae or Freddie Mac] shall be subject to State, territorial, county, municipal, or local taxation to the same extent as other real property is taxed.” 12 U.S.C. § 1723a(c)(2) (as to Fannie Mae); see also id. § 1452(e) (as to Freddie Mac); id. § 4617(j)(2) (as to the FHFA).

Maryland and South Carolina, as well as many other states, impose taxes on the ownership of real property, as well as excise taxes on the transfer of real property.

Maryland's property tax is imposed annually on owners of real property located in the State, based on the assessed value of the property. SeeMd.Code Ann., Tax–Prop. §§ 5–102(a), 6–101(a), 6–201(a). In addition, Maryland imposes a recordation tax on “instrument[s] of writing” ( e.g., deeds, leases, and mortgages) that are recorded

[740 F.3d 919]

with the clerk of a circuit court, as well as a transfer tax on the same “instrument[s] of writing.” See id.§§ 12–102, 13–202. The amount of the recordation and transfer taxes are based on the “consideration” paid for the real property or the principal amount of debt secured. See id.§§ 12–103, 13–203. Maryland also authorizes counties to impose transfer taxes, which, for example, Montgomery County has done. See id. § 13–402.1; Montgomery County Code § 52–19et seq.

South Carolina similarly imposes an annual tax on the ownership of real property located in the State, based on its assessed valuation. SeeS.C.Code Ann. §§ 12–37–30, 12–37–210, 12–37–610. In addition, South Carolina imposes “recording fees” “for the privilege of recording deeds in which land ... is transferred to another person.” Id.§ 12–24–10(A). As with Maryland, the rate for the recording fees in South Carolina is based on the “consideration paid or to be paid” for the real property or for the debts recorded. Id.§ 12–24–30(A).

In the course of their business, Fannie Mae and Freddie Mac acquired real property in both Maryland and South Carolina through foreclosures on mortgages that they owned or guaranteed. When selling these properties to third persons, they refused to pay the transfer taxes and recording fees, claiming to be exempt from them under 12 U.S.C. §§ 1723a(c)(2) and 1452(e), respectively. The Maryland and South Carolina counties, which collect these taxes, disputed Fannie Mae and Freddie Mac's claimed exemptions, contending that the exemptions did not cover state and local transfer taxes, including recording fees, insofar as they related to real property, and they commenced these actions (one in Maryland and two in South Carolina) for a declaratory judgment that Fannie Mae and Freddie Mac are liable for transfer taxes and recording fees and to recover as damages the taxes and fees that they refused to pay. The FHFA, as conservator of Fannie Mae and Freddie Mac, was also named a...