Do Virginia clerks have to collect recordation taxes when Fannie Mae or Freddie Mac is the grantor or grantee on a deed?

Plain-English summary

A circuit court clerk asked whether her office had to collect Virginia recordation taxes when Fannie Mae or Freddie Mac was a party to a deed. The AG concluded that they did not. Federal law exempts both entities, and the Federal Housing Finance Agency (FHFA) as their conservator, from "all taxation" by state and local governments, except for direct tax on real property. Virginia's recordation tax was not a direct tax on property. It was a tax on the civil privilege of using the state's recording system. So the federal exemption applied.

The opinion walked through the federal statutory text. Fannie Mae's charter, 12 U.S.C. § 1723a(c)(2), exempted the corporation "including its franchise, capital, reserves, surplus, mortgages or other security holdings, and income" from all state, territorial, county, municipal, or local taxation, except for taxes on its real property. Freddie Mac's parallel exemption in 12 U.S.C. § 1452(e) said almost the same thing. After the 2008 Housing and Economic Recovery Act, 12 U.S.C. § 4617(j)(2) extended the same exemption to the FHFA itself.

A 2012 Michigan federal court (Oakland County) had read those exemptions narrowly, treating Michigan's transfer tax as an excise that fell outside the "all taxation" exemption. The AG rejected that reading. Two other 2012 federal decisions, Hager in D.C. and Hertel in the Western District of Michigan, had concluded that "all taxation" really did mean all taxation, with the only carve-out being the explicit real property exception. The Supreme Court's Wells Fargo case, on which Oakland County relied, had involved a property-exemption statute, not an entity-exemption statute. The AG read the difference as decisive.

Virginia law was consistent. The recordation tax in Virginia "is not a tax upon property ... but a tax upon a civil privilege," that is, the privilege of using the state's registration laws. Since at least 1992, the AG's office had opined that when a federal statute bars all state or local taxation of a federally created entity except for tax on its real estate, the entity is exempt from the recordation tax whenever it is a principal (grantor or grantee) in the transaction, though not when it is merely a guarantor or beneficiary.

Currency note

This opinion was issued in 2012. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

Common questions

Does the exemption apply when Fannie Mae or Freddie Mac is just guaranteeing a loan?
No. The opinion drew a line between principal status (grantor or grantee on the deed) and merely guaranteeing or being a beneficiary. The exemption reaches the entity only when it is a principal in the transaction.

Did this opinion settle the dispute nationwide?
No. The AG opinion only bound the Commonwealth, and the federal decisions across the country were split. The AG found the Hager and Hertel reasoning more persuasive than the Oakland County rationale.

Why does Virginia treat the recordation tax this way?
Virginia treats the recordation tax not as a property tax but as a tax on the civil privilege of using the state's recording system. That classification is what makes the federal "all taxation" exemption reach it.

Background and statutory framework

The Virginia Recordation Tax Act requires every circuit court clerk to collect recordation taxes on documents presented for recording. The tax is on the privilege of recording, not on the underlying property.

Federal preemption arises from the Supremacy Clause of the Constitution of the United States. The AG noted that Congress may create exemptions from taxation for specific entities even where those exemptions are not memorialized in state law.

Fannie Mae and Freddie Mac, both federally chartered government-sponsored enterprises (GSEs), have parallel charter exemptions:

• 12 U.S.C. § 1723a(c)(2) (Fannie Mae): exempt "from all taxation" by states, with carve-out for real property.
• 12 U.S.C. § 1452(e) (Freddie Mac): same exemption language.

The Housing and Economic Recovery Act of 2008 created the Federal Housing Finance Agency (FHFA) to oversee Fannie Mae and Freddie Mac, and the FHFA received the same kind of broad exemption at 12 U.S.C. § 4617(j)(2) as conservator and successor to the two enterprises.

The Supreme Court's Wells Fargo case interpreted a property-based exemption. It drew a distinction between an excise tax on transfer or use and a tax levied on property itself, and noted that property exemptions historically permitted excise taxation. Oakland County tried to extend that logic to the Fannie Mae and Freddie Mac entity exemptions. Hager and Hertel rejected the extension because the statutory texts at issue exempted the entities, not just their property.

Citations

• Va. Code § 2.2-505 (Attorney General opinions)
• 12 U.S.C. § 1452(e) (Freddie Mac charter exemption)
• 12 U.S.C. § 1723a(c)(2) (Fannie Mae charter exemption)
• 12 U.S.C. § 4617(j)(2) (FHFA exemption)
• United States v. Wells Fargo Bank (U.S. Supreme Court)
• Oakland County v. Fed. Hous. Fin. Agency (E.D. Mich.)
• Hager v. Fed. Nat'l Mortg. Ass'n (D.D.C.)
• Hertel v. Bank of America, N.A. (W.D. Mich.)

Source

• Landing page: https://www.oag.state.va.us/annual-reports-opinions/official-opinions
• Original PDF: https://www.oag.state.va.us/files/Opinions/2012/12-038_Worthington.pdf

Original opinion text

COMMONWEALTH of VIRGINIA
Office of the Attorney General
Kenneth T. Cuccinelli, II
Attorney General

November 1, 2012

The Honorable Judy L. Worthington
Clerk of the Circuit Court
Post Office Box 125
Chesterfield, Virginia 23832

Dear Mrs. Worthington:
I am responding to your request for an official advisory opinion in accordance with § 2.2-505 of the Code of Virginia.

Issue Presented
You inquire whether the Federal National Mortgage Association ("Fannie Mae") and the Federal Home Loan Mortgage Corporation ("Freddie Mac"), when they are parties to the transaction, are exempt under federal or state statutes from the collection of recordation taxes, as required by the Virginia Recordation Tax Act on documents presented for recordation in the Circuit Court's Deed Book.

Response
It is my opinion that applicable federal statutes exempt Fannie Mae and Freddie Mac from the taxes levied by the Virginia Recordation Tax Act when they are the grantor or grantee on a deed, instrument or other writing in a transaction for the conveyance of an interest in real property.

Applicable Law and Discussion
The Virginia Recordation Tax Act requires every circuit court clerk in Virginia to collect certain recordation taxes. Nevertheless, in accordance with the Supremacy Clause of the Constitution of the United States, this Office previously has opined that "Congress may create exemptions from taxation for specific entities even if such exceptions are not memorialized in the states' laws. Implicit in [this] opinion is the authority of the federal government to exempt specific real estate transactions from state taxation."

In this regard it is important to examine the language of the statutory exemptions Congress granted specifically to Fannie Mae and Freddie Mac. Fannie Mae's federal charter provides that:

The corporation, including its franchise, capital, reserves, surplus, mortgages or other security holdings, and income, shall be exempt from all taxation now or hereafter imposed by any State, territory, possession, Commonwealth, or dependency of the United States, or by the District of Columbia, or by any county, municipality, or local taxing authority, except that any real property of the corporation shall be subject to State, territorial, county, municipal, or local taxation to the same extent as other real property is taxed.

In nearly identical terms, Freddie Mac's charter states:

The Corporation, including its franchise, activities, capital, reserves, surplus, and income, shall be exempt from all taxation now or hereafter imposed by any territory, dependency, or possession of the United States or by any State, county, municipality, or local taxing authority, except that any real property of the Corporation shall be subject to State, territorial, county, municipal, or local taxation to the same extent according to its value as other real property is taxed.

In addition, the Housing and Economic Recovery Act of 2008 ("HERA"), which created the Federal Housing Finance Agency ("FHFA") to oversee Fannie Mae and Freddie Mac, provides that the FHFA:

including its franchise, its capital, reserves, and surplus, and its income, shall be exempt from all taxation imposed by any State, county, municipality, or local taxing authority, except that any real property of the Agency shall be subject to State, territorial, county, municipal, or local taxation to the same extent according to its value as other real property is taxed . . . .

Thus Congress has exempted Fannie Mae and Freddie Mac, and the FHFA, their conservator and successor in rights, powers and privileges, from "all taxation" by state and local governments. Nonetheless, Congress also has provided an exception in each of the three statutes allowing Fannie Mae, Freddie Mac, and FHFA to be taxed on "real property ... to the same extent according to its value as other real property is taxed."

Your opinion request references a decision of the United States District Court in the Eastern District of Michigan earlier this year. Interpreting Michigan law, the court in that case found that the Michigan "transfer tax" is an excise tax levied on the use or transfer of real property, and not a direct tax levied on the property itself. The court held that the statutory exemptions from "all taxation" provided by Congress to Fannie Mae and Freddie Mac do not apply to excise taxes and, thus, the entities are liable for payment of the transfer tax.

The Oakland County court found the United States Supreme Court case Wells Fargo to be dispositive of the case: the district court interpreted the Wells Fargo opinion to stand for the proposition that a statutory exemption from "all taxation" means all direct taxation and does not apply to excise taxation. This interpretation springs from the following passage in Wells Fargo:

[A]n exemption of property from all taxation had an understood meaning: the property was exempt from direct taxation, but certain privileges of ownership, such as the right to transfer the property, could be taxed. Underlying this doctrine is the distinction between an excise tax, which is levied upon the use or transfer of property even though it might be measured by the property's value, and a tax levied upon the property itself. The former has historically been permitted even where the latter has been constitutionally or statutorily forbidden.

More recently, however, two other federal courts have reached the opposite conclusion in cases involving the same question. On August 9, 2012, the United States District Court for the District of Columbia decided Hager v. Federal National Mortgage Association, a case in which plaintiffs alleged Fannie Mae and Freddie Mac violated the District of Columbia False Claims Act because they claimed to be exempt from recordation taxes when they were not. In ruling against the plaintiffs, the judge stated his analysis of the exact statutory language at issue in this opinion:

[T]he language here is sweeping and unambiguous. Fannie Mae and Freddie Mac "shall be exempt from all taxation" imposed by D.C., with a single, narrow exception all agree is inapplicable here. The recordation tax is undoubtedly a form of taxation imposed on the Enterprises. That should be "the end of the matter." . . . True, "exemptions from taxation are not to be implied; they must be unambiguously proved," . . . but Congress created precisely such an "unambiguous[]" exemption here.

The court in Hager then refuted the rationale of the Oakland County court by noting that the current case involving Fannie Mae and Freddie Mac is substantively different than the case cited as precedent for the Oakland County decision. In particular, the judge noted that:

[T]he Wells Fargo provision exempted property from taxation . . . . The statutory provisions at issue in this case, on the other hand, exempt an entity from all taxation . . . . Wells Fargo did not mandate an atextual reading of "all taxation"; it simply considered the inherent limitations of exempting property, rather than its owner, from taxation . . . . [A]ccepting plaintiffs' argument would lead to near absurdity. It would leave the statutory provisions, so sweeping in their language, virtually meaningless.

The Hager court then held that Fannie Mae and Freddie Mac are statutorily exempt from paying District of Columbia recordation taxes.

On September 18, 2012, in Hertel v. Bank of America, the United States District Court for the Western District of Michigan granted summary judgment to defendants FHFA, Fannie Mae and Freddie Mac and dismissed an action originally brought by the Ingham County Register of Deeds seeking to recover from defendants unpaid real estate transfer taxes. After examining the statutory exemptions from state and local taxation under 12 U.S.C. §§ 1723a(c)(2) (Fannie Mae), 1452(e) (Freddie Mac) and 4617(j)(2) (FHFA), the court concluded:

There is no possible reading of the statutes other than that Fannie Mae, Freddie Mac, and the FHFA are exempt from all state taxation, regardless of whether it is termed a recording or excise tax. "All" is an inclusive adjective that does not leave room for unmentioned exceptions. Indeed, the fact that one exception is explicitly included further supports this conclusion. Each statute contains an exception for the taxation of real property. See 12 U.S.C. §§ 1723a(c)(2), 1452(e), 4617(j)(2). "Where Congress explicitly enumerates certain exceptions to a general prohibition, additional exceptions are not to be implied, in the absence of evidence of a contrary legislative intent."

The court in Hertel also found plaintiffs' reliance on Wells Fargo to be misplaced. While the statute at issue in Wells Fargo exempted from all taxation certain property (specifically, project notes issued by state and local public housing agencies), the Hertel court noted in contrast that the Fannie Mae, Freddie Mac and FHFA statutes:

have a broader exemption. They exempt the entities, not just the property involved, [which] means that the exemption is triggered if the owners of the property, [Fannie Mae, Freddie Mac and FHFA], are held liable for the [transfer tax]. While the [transfer tax] is a tax on the transfer of property, to tax the transfer is to tax the entity who has to pay the tax, and by statute, [Fannie Mae, Freddie Mac and FHFA] are exempt from all taxation.

In ruling for defendants FHFA, Fannie Mae and Freddie Mac, the court observed that "[p]laintiffs ask the Court to ignore the unambiguous language of multiple federal statutes and impose tax liability on the Enterprise Defendants under a Michigan statute, without providing a satisfying explanation as to why, after years of having no problem with the defendants' claimed exemptions, there is an issue now."

Virginia law is consistent with the federal decisions regarding the status of the recordation tax. The recordation tax in Virginia "is not a tax upon property ... but a tax upon a civil privilege, that is, for the privilege of availing ... of the benefits and advantages of the registration laws of the State." Since at least 1992, this Office has opined consistently that when a federal statute prohibits all state or local taxation on an entity created by the federal government, except for taxation on that entity's real estate, the entity enjoys an exemption from the recordation tax whenever it is a principal to the transaction, although not when it is merely serving as a guarantor or beneficiary in the transaction. There is no substantive difference between the language at issue in the statutes under consideration in this opinion and those interpreted in prior opinions of the Attorney General. This position also is consistent with the rationale articulated by the courts in Hager and Hertel, and I find that this position continues to be more persuasive than the Oakland County rationale.

Therefore, because the recordation tax is not a tax on property similar to local assessment-based real estate taxes, but instead is a tax on the recording parties for the privilege of utilizing the land recordation system of Virginia, the federal statutory language in 12 U.S.C. §§ 1723a(c)(2), 1452(e), and 4617(j)(2) must be interpreted such that the federal exemption in each charter applies.

Conclusion
Accordingly, it is my opinion that applicable federal statutes exempt Fannie Mae and Freddie Mac from the taxes levied by the Virginia Recordation Tax Act when they are the grantor or grantee on a deed, instrument or other writing in a transaction for the conveyance of an interest in real property.

With kindest regards, I am
Very truly yours,

Kenneth T. Cuccinelli, II
Attorney General