Freddie Mac 2012 Annual Report Download - page 322

other parties seeking a declaration rescinding $90 million of mortgage bankers bonds providing fidelity and errors and
omissions insurance coverage. Several excess insurers on the bonds thereafter filed similar claims in that action. Freddie Mac
has filed a proof of loss under the bonds, but we are unable at this time to estimate our potential recovery, if any, thereunder.
Discovery is proceeding.
IRS Litigation
In 2010 and 2011, we received Statutory Notices from the IRS assessing a total of $3.0 billion of additional income
taxes and penalties for the 1998 to 2007 tax years. We filed a petition with the U.S. Tax Court on October 22, 2010 in
response to the Statutory Notices for the 1998 to 2005 tax years. We paid the tax assessed in the Statutory Notices for the
years 2006 to 2007 of $36 million in 2012 and will seek a refund through the administrative process, which could include
filing suit in District Court. A Tax Court trial date was scheduled for November 13, 2012; however, on June 7, 2012, the Tax
Court granted a joint motion for continuance in order for both parties to explore settlement options, suspending the trial date
until further notice. We have had ongoing discussions with the IRS regarding the litigation, and favorably resolved the
matters in dispute. As a result, the previously unrecognized tax benefits were reduced to zero in the fourth quarter of 2012.
For information on this matter, see “NOTE 12: INCOME TAXES — Unrecognized Tax Benefits — IRS Examinations and
Litigation.”
Lawsuits Involving Real Estate Transfer Taxes
Several lawsuits have been filed against Freddie Mac, Fannie Mae, and FHFA (as Conservator) in Michigan challenging
Freddie Mac and Fannie Mae’s statutory exemption from real estate transfer taxes imposed on the transfer of real property
for which Freddie Mac or Fannie Mae was the grantor or grantee. Similar lawsuits were filed in 20 other states and the
District of Columbia after we received the unfavorable ruling in Michigan on March 23, 2012, which is discussed below.
Plaintiffs in these cases are generally seeking a declaration that Freddie Mac and Fannie Mae are not exempt from transfer
taxes, damages for unpaid transfer taxes, as well as other items, which may include penalties, interest, liquidated penalties,
pre-judgment interest, costs and attorneys’ fees. (Several of these lawsuits were recently resolved in our favor.) We are also a
defendant in a second similar lawsuit in the District of Columbia. This lawsuit was dismissed with prejudice in August 2012,
but that ruling has been appealed to the U.S. Court of Appeals.
On June 20, 2011, Oakland County (Michigan) and the Oakland County Treasurer filed a lawsuit against Freddie Mac
and Fannie Mae in the U.S. District Court for the Eastern District of Michigan alleging that the enterprises failed to pay real
estate transfer taxes on transfers of real property in Oakland County where the enterprises were the grantors. FHFA later
intervened as Conservator for Freddie Mac and Fannie Mae. On November 10, 2011, Genesee County (Michigan) and the
Genesee County Treasurer filed a class action lawsuit in the same court on behalf of itself and the other 82 Michigan counties
raising similar claims against FHFA (as Conservator), Freddie Mac, and Fannie Mae. The Court later certified the class, with
two Michigan counties opting out. The Michigan Department of Attorney General and the Michigan Department of Treasury
intervened in both actions against the defendants. In both actions, FHFA, Freddie Mac and Fannie Mae asserted that they
were not liable for the transfer taxes based on federal statutory tax exemptions applicable to each. On March 23, 2012, the
Court granted summary judgment against FHFA (as Conservator), Freddie Mac, and Fannie Mae in both actions, determining
that the statutory exemptions did not exempt them from Michigan’s state and county transfer tax. The plaintiffs in both cases
subsequently filed amended complaints to cover purportedly taxable transactions where Freddie Mac and Fannie Mae
received property as grantees through a Michigan Sheriff’s deed or a deed in lieu of foreclosure. FHFA (as Conservator),
Freddie Mac, and Fannie Mae filed an appeal to the U.S. Court of Appeals for the Sixth Circuit, and the District Court has
stayed the actions pending resolution of the appeal. The District Court has not yet addressed the amount of damages the
plaintiffs contend are owed in either case.
On or about June 22, 2011, Curtis Hertel (individually and as Register of Deeds of Ingham County, Michigan) filed suit
in Michigan state court against Freddie Mac, Fannie Mae and others alleging, among other things, that the defendants failed
to pay real estate transfer taxes on transfers of real property in Ingham County where the enterprises were the grantors and
grantees. FHFA later intervened as Conservator for Freddie Mac and Fannie Mae, and the Michigan Department of Attorney
General and the Michigan Department of Treasury intervened against the defendants. The defendants removed the case to the
U.S. District Court for the Western District of Michigan and then filed motions to dismiss and/or for summary judgment. The
Court dismissed plaintiff Hertel from the case concluding that Hertel was not a proper plaintiff. On September 18, 2012, the
Court ruled in favor of Freddie Mac, Fannie Mae and FHFA on their motion to dismiss and/or for summary judgment as to
the claims asserted by the Michigan Department of Attorney General and the Michigan Department of Treasury, finding
Freddie Mac and Fannie Mae exempt from the Michigan transfer taxes.
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