Eileen's Blog

Did You Purchase a Foreclosed Property & Pay Transfer Tax-You May Be Eligible for a Refund

February 25th, 2015 7:53 AM by Eileen Denhard

Great News for Buyer Clients Seeking Transfer Tax Refund!
Brian F. Westrin, Esq.
Director of Legal Affairs

Do you have a buyer client who paid the transfer tax on a Fannie Mae or Freddie Mac property? We have great news to report - A refund mechanism is now available.

By way of background, a 6th Circuit Court of Appeals determined last year that Fannie Mae and Freddie Mac are federal agencies exempt from State and County real estate transfer taxes. This 6th Circuit ruling overturned a lower court that said Michigan counties could collect such taxes from Fannie Mae and Freddie Mac.

While Fannie Mae and Freddie Mac have steadfastly claimed that they remain exempt from all taxes of this nature, both agencies either already utilized or elected to adopt contract addendums to indemnify themselves from any unforeseen taxes on a sale, shifting the potential burden to the buyer during the pendency of the above court proceedings.

For a buyer that paid the transfer tax pursuant to an agreement with Fannie Mae or Freddie Mac, the 6th Circuit Court of Appeals decision was slightly less satisfying. While Michigan law provides that a seller is responsible for payment of County and State transfer taxes, a seller can contractually agree to have a buyer assume that obligation. Michigan law also provides for a refund mechanism, available to sellers having paid the tax in error or unnecessarily. The same refund mechanism had not been directly available to buyers having paid the tax – until now.

The Michigan Department of Treasury has posted new instructions for affected buyers to directly apply for refunds on transfers concerning Fannie Mae and Freddie Mac.

The instructions and the refund form can be accessed here: http://www.michigan.gov/documents/2796f7_2601_7.pdf

The prompt provides:

“For property owners who purchased from Fannie Mae or Freddie Mac: If you are seeking a refund of the SRETT paid on the purchase of the home, complete this form (2796) as if you were the seller of the home. You must attach the following documents with the completed form:

  • Copy of your Settlement Statement (HUD-1)
  • Copy of your RECORDED DEED containing the tax stamp.”

If you have a client in this situation, you can provide them with the above information and advise them to contact Treasury with any questions. The direct contact for State Real Estate Transfer Tax inquiries is (517) 636-0515.

A similar exemption is available for the County Real Estate Transfer Tax. While Counties may have varying approaches to refunds, it is worth advising your client to contact their County Treasurer to inquire about the process.

The Michigan REALTORS® is also supporting House Bill 4173, introduced by Representative David Maturen (R- Indian Lake), to enshrine into state law a buyer’s right to apply for a transfer tax refund.  The bill would also clarify the application of exemption ”u” under the State Real Estate Transfer Tax Act to mirror the important 2008 Attorney General Opinion. As many of your will recall, exemption “u” offers potential tax relief for sellers whose property has declined in value from the time it was originally purchased to the time it was sold.  We will continue to update you on the progress of this important legislation.

Posted in:General
Posted by Eileen Denhard on February 25th, 2015 7:53 AM

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