A woman who bought a home last year in Chicago’s Ravenswood neighborhood believes the city improperly charged her taxes on her purchase of the formerly foreclosed property from Fannie Mae, and she has filed a class action to demand the city pay her back, as well as perhaps thousands of others who have paid real estate transfer taxes to the city for property they, too, purchased from either of the federal mortgage giants.
On Dec. 7, Lelani Fetrow, through attorneys with the firms of DiTommaso Lubin PC, of Oakbrook Terrace, and Kinnally Flaherty Krentz Loran Hodge & Masur, of Aurora, filed suit in Cook County Circuit Court against the city of Chicago, corporately, as well as the city’s Finance Department and Department of Administrative Hearings. The lawsuit also names as defendants Mayor Rahm Emanuel and City Comptroller Daniel Widawsky, and Patricia Jackowiac, director of the Administrative Hearing Department, each in their official capacities.
Fetrow’s lawsuit comes in the wake of an action introduced in Chicago federal court in October by Fannie Mae, or the Federal National Mortgage Association, as it is officially known, which sued the city over the collection of transfer taxes on the sale of properties it held. Fannie Mae was joined in that actin by the Federal Housing Finance Agency.
In that lawsuit, Fannie Mae said federal law exempts its property sales from the real estate transfer tax and other excise taxes that might be imposed by local governments. Yet the city has repeatedly charged buyers of homes sold by Fannie Mae with the taxes, which Fannie Mae has alleged is in violation of the law.
The litigation initiated by Fannie Mae and the class action by Fetrow both center on the city’s practice of assessing taxes equivalent to 3.75 percent of every $500 of the assessed value of all property sold in the city, plus an additional 1.5 percent per $500 assessed value tax, dedicated to the Chicago Transit Authority. Such so-called transfer taxes are typically paid by the buyer at the time the title to the property is transferred from the seller to the new owner.
Such taxes are a money maker for the city. According to the city’s budget, City Hall expects to collect 9 percent of its annual revenue, or about $326 million, from transaction taxes, which include the real estate transfer tax, as well as taxes on property leases and rented vehicles.
Fannie Mae centered its complaint on four particular properties. Fetrow’s property in the 4000 block of N. Wolcott Avenue was not among those.
In each instance cited by Fannie Mae’s federal complaint, each of the buyers purchased a foreclosed home from the federal agency and unsuccessfully attempted to challenge the city’s transfer tax assessment. In each case, the city’s administrative law judge and other officials determined each of the property buyers owed the city taxes.
Fannie Mae said the law should exempt both the agency and buyers of its properties from such local government taxation.
In the class action, Fetrow said she initially opted not to pay the transfer taxes when she purchased a foreclosed property from Fannie Mae in March 2014, believing the taxes did not apply to her purchase. The city, however, then charged her penalties and interest, threatened her with a lien. Purportedly in fear of “incurring additional penalties and interest, having a lien placed on her property, or having the city of Chicago foreclose on such a lien,” she paid the taxes and interest.
However, citing the same legal rationale present in Fannie Mae’s litigation, she said she now believes those taxes were illegally collected and the city owes refunds, with interest, and other damages, to her and perhaps thousands of others who purchased homes from either Fannie Mae or Freddie Mac and from whom such taxes have been collected. The lawsuit does not specify a timeframe in which those taxes may have been collected.
The lawsuit demands the city refund all transfer taxes, plus penalties and interest, collected by the city from the purchasers of homes sold by Fannie Mae or Freddie Mac; prejudgment interest; litigation costs; and injunctions barring the city from any longer collecting the taxes on homes sold by the federal agencies, imposing penalties and interest on unpaid taxes, or placing or foreclosing on liens on properties sold by Fannie Mae or Freddie Mac.