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Federal National Mortgage Association v. City of Chicago

United States Court of Appeals, Seventh Circuit

October 30, 2017

Federal National Mortgage Association, et al., Plaintiffs-Appellees,
v.
City of Chicago, et al., Defendants-Appellants.

          Argued September 20, 2017

         Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 15 CV 9150 - Sara L. Ellis, Judge.

          Before Manion and Kanne, Circuit Judges, and Miller, District Judge. [*]

          KANNE, CIRCUIT JUDGE.

         In 2013, this court held that state and local taxing authorities could not charge the Federal National Mortgage Association, Federal Home Loan Mortgage Corporation, or Federal Housing Finance Agency with real estate transfer taxes, because such taxes are preempted by federal laws exempting these entities from all taxation. We must now determine whether the federal statutory exemptions apply when the transfer tax is charged to a private buyer who purchases real estate from one of the exempt federal entities. The district court concluded that, because the imposition of a transfer tax impacts the price the federal entities can charge for real property, the tax is unconstitutional regardless of who is required to pay it. Because this conclusion is contrary to the plain language of the tax exemption provisions, the judgment of the district court is reversed.

         I. Background

         The Federal National Mortgage Association ("Fannie Mae") and Federal Home Loan Mortgage Corporation ("Freddie Mac") are federally chartered, privately owned corporations. They were created by Congress to bolster the housing market by establishing a secondary mortgage market. In 2008, Fannie Mae and Freddie Mac were placed into conservatorship, and the Federal Housing Finance Agency (FHFA) was appointed as conservator. Fannie Mae and Freddie Mac generally carry out their mission by purchasing mortgages from third party lenders, bundling or pooling the mortgages, and then selling securities backed by the mortgages. When a borrower defaults, the mortgage-holding entity (Fannie Mae or Freddie Mac) forecloses and takes title to the real estate securing the loan. The mortgage-holding entity then sells the foreclosed property to a private buyer. Between August 2013 and December 2014, Amy Wettersten, Rama Group International, Inc., Angel Ramos, Barbara Ramos, and Veeral Patel ("the buyers") purchased real property in Chicago from Fannie Mae.

         The City of Chicago imposes a Real Property Transfer Tax on the transfer of real property located within Chicago. Chi., 111. Municipal Code § 3-33-030. The "primary incidence of the tax and the obligation to pay the tax are on the purchaser, grantee, assignee, or other transferee" of the property. Id. § 3-33-030(C). This is referred to as the "City portion" of the transfer tax. A supplemental tax, referred to as the "CTA portion" of the transfer tax, is to be paid by the transferor, unless the transferor is exempt by operation of state or federal law, in which case the transferee is held responsible for that portion of the tax as well. Id. § 3-33-030(F). The tax is due upon the earlier of the delivery or the recording of the instrument of transfer. Id. § 3-33-030(B)(1).

         None of the buyers paid the transfer tax when they received or recorded the titles to the properties they purchased from Fannie Mae. The Illinois Department of Finance assessed the buyers for the tax, and the buyers protested on the basis that Fannie Mae, Freddie Mac, and FHFA are exempt from all taxation. An administrative law judge in the Department of Finance ruled that each buyer was liable for the tax, and the director of the Department affirmed. The buyers and the federal entities (together, the plaintiffs-appellees) sued the City of Chicago and its relevant taxing officials in federal court seeking review of the Department's decision.

         The district court for the northern district of Illinois concluded that the tax was preempted by the federal exemption statutes. Accordingly, the court granted summary judgment for the appellees, issued declarations stating that the transactions were exempt from taxation, and issued an injunction barring the City from collecting the taxes from the federal en- tities or the buyers. The district court also denied the appellants' motion to dismiss for lack of jurisdiction, which the appellants do not challenge on appeal.

         II. Analysis

         The Supremacy Clause of the United States Constitution provides that "the laws of the United States ... shall be the supreme Law of the Land; ... any Thing in the Constitution or Laws of any State to the contrary notwithstanding." U.S. Const, art. VI, cl. 2. "[S]tate law that conflicts with federal law is 'without effect.'" Cipollone v. Liggett Group, Inc., 505 U.S. 504, 516 (1992) (quoting Maryland v. Louisiana, 451 U.S. 725, 746 (1981)).

         The appellees contend that the Chicago Real Property Transfer Tax conflicts with the tax exemption provisions in the federal statutes governing Fannie Mae, Freddie Mac, and FHFA and, therefore, that the tax is "without effect." In DeK-alb County, this court held that the federal tax exemptions preempted such a tax, insofar as the tax was charged to Fannie Mae, Freddie Mae, or FHFA. 741 F.3d 795 (7th Cir. 2013). All other circuits that have addressed this issue reached the same conclusion. Montgomery Cty. Comm'n v. Fed. Hous. Fin. Agency, 776 F.3d 1247, 1255 (11th Cir. 2015); City of Spokane v. Fed. Nat'l Mortg. Ass'n, 775 F.3d 1113 (9th Cir. 2014); Town of Johnston v. Fed. Hous. Fin. Agency, 765 F.3d 80 (1st Cir. 2014); Bd. of Cty. Comm'rs v. Fed. Hous. Fin. Agency, 754 F.3d 1025 (D.C. Cir. 2014); Delaware County v. Fed. Hous. Fin. Agency, 747 F.3d 215 (3d Cir. 2014); Hennepin County v. Fed. Nat'l Mortg. Ass'n, 742 F.3d 818 (8th Cir. 2014); Montgomery County v. Fed. Nat'l Mortg. Ass'n, 740 F.3d 914 (4th Cir. 2014); County of Oakland v. Fed. Hous. Fin. Agency, 716 F.3d 935 (6th Cir. 2013).

         We must now determine whether the scope of the exemptions expands so far as to exempt individuals who purchase property from the federal entities. We review the district court's grant of summary judgment in favor of the appellees on this issue de novo. Alston v. City of Madison,853 F.3d 901, 906 (7th Cir. 2017). A grant of summary judgment is appropriate if "there is no genuine dispute as to any material fact/' and the moving party is "entitled to judgment as a ...


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