Illinois Appellate Court affirms sales from Fannie Mae and Freddie Mac not exempt from City transfer taxes

In Trilisky v. City of Chicago, 2019 IL App (1st) 182189 (Sept. 26, 2019), a purchaser who bought real estate from Fannie Mae, and was assessed a transfer tax on the transaction, sued the City of Chicago on behalf of a class claiming that sales to and from Fannie Mae and Freddie Mac (“Enterprises”) were exempt from the Chicago Real Property Transfer Tax because the transfers involve “real property acquired by or from any governmental body.” The trial court dismissed the suit on the grounds that the Enterprises were not governmental bodies under the Municipal Code (“Code”) so were not exempt. The appellate court affirmed.

In arguing the transaction involved “real property acquired by or from any governmental body,” Plaintiff centered her argument on Congress’s creation of the Federal Housing Finance Agency (“Agency”) in 2008 and the fact that the Agency (1) subsequently placed the Enterprises into a conservatorship, (2) appointed itself as conservator, and (3) consequently succeeded to “all rights, titles, powers, and privileges” of the Enterprises. Plaintiff argued the Enterprises were transformed into federal instrumentalities when the Agency appointed itself as their conservator in 2008. As federal instrumentalities the Enterprises can therefore be considered governmental bodies.

The reviewing court noted that the Code does not define the term “governmental body.” However, terms such as “governmental bodies,” “governmental agencies,” “departments of the State of Illinois,” “political subdivisions,” “public or municipal corporations,” “the federal government,” and “the United States Government or any agency thereof” are used throughout the Code. In utilizing the specific language, “governmental body”, the city council excluded from the transfer tax exemption other entities which are afforded exemptions elsewhere in the Code. The plain language of the transfer tax therefore indicated the intent to exempt from the tax property acquired by or from governmental bodies, and not property acquired by or from governmental agencies or instrumentalities. Further, it did not follow that the city council intended federal instrumentalities to be under the umbrella of a “governmental body” where the council was clearly able to define the term to be so inclusive.

The Court’s interpretation was supported by an informational bulletin from the Chicago Department of Finance which expressly stated that the Enterprises do not qualify as governmental bodies under the transfer tax exemption. While acknowledging an informational bulletin is not equivalent to an official tax ruling or regulation, the bulletin placed the public on notice that the Enterprises are not governmental bodies under the transfer tax. Further, since the Agency commenced its conservatorship, the Department of Finance has issued 12 additional informational bulletins yet did not change its position on the issue. Although informational bulletins are not part of the Code—and therefore do not carry the force and effect of law—“we find it implausible that the city council would remain silent for over 10 years if the informational bulletin contradicted its intent”.

Moreover, the fact that the Enterprises are privately owned, the money they borrow is not backed by the full faith and credit of the federal government, do not exercise powers reserved to the government, do not have the power to commit the government financially, their employees are not federal employees, they have little or no control over the federal government or its decisions, are not organized as branches of the government itself, and do not perform a function necessary to maintain the government’s existence, amply support the conclusion that they are not “governmental bodies”.

The Court also rejected the argument that the Enterprises were transformed into governmental bodies as a result of the Agency succeeding to “all rights, titles, powers, and privileges” of the enterprises in 2008. In fact, the opposite was true: when the Agency succeeded to “all rights, titles, powers, and privileges” of the Enterprises, it was granted the rights and powers of the enterprises, but the enterprises were not granted the rights and powers of the government, citing Herron v. Fannie Mae, 861 F.3d 160 (D.C. Cir. 2017).

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