HVFCU appeals ruling
Credit unions across the nation are watching a landmark lawsuit filed by Hudson Valley Federal Credit Union in Poughkeepsie in 2009.
The credit union cited legislation from 1934 stating “income shall be exempt from all taxation now and hereafter imposed by the United States or by any state, territorial or local taxing authority.” For HVFCU and its members who paid mortgage recording taxes, a favorable decision could see a windfall for millions as well as millions in less revenue for state and municipal governments.
State Supreme Court Justice Judith Gische dismissed the claim in June saying the mortgage recording tax was not a tax, per se, but a tax on the “privilege” of recording the mortgage. But all”™s not lost, said Dale Lois, partner with Quartararo & Lois P.L.L.C., the attorneys in Fishkill representing the credit union.
Lois filed an appeal. He said: “We will vigorously defend against the state … but I don”™t think we”™re going to collect. It doesn”™t mean anyone is getting money back. What we”™ve asked is that the state stop collecting the mortgage recording taxes going forward. The New York state Supreme Court recognized we have a valid claim but felt constrained by state law. Now it is up to the Appellate Division to rule.”
Ironically, the HVFCU”™s members who took mortgages out are going after the credit union to get the taxes they paid back from the borrower, having filed a class action suit in April. They are represented by Connecticut-based Izard Nobel in Hartford.
“It isn”™t going to go anywhere,” Lois said. “The credit unions are not the taxing authority ”“ the state is.” Izard Nobel”™s lawyers disagree, telling the media the tax is unfair as strictly defined by the 1934 law. K&L Gates, Manhattan co-counsel for HVFCU”™s Fishkill attorney, is filing a motion to dismiss the class-action suit.
Hudson Valley Federal Credit Union, which was formerly IBM”™s credit union headquartered in Poughkeepsie, has members in Dutchess, Orange and Sullivan counties who paid nearly $1.8 million in mortgage recording taxes in 2009. Credit unions match the amount; half of the money goes to state coffers while the rest is paid back to the municipalities where the mortgages are recorded.
Keith Leggett, vice president and senior economist for the American Bankers Association, commented last month on the class-action suit in his blog: “There could be potentially thousands of plaintiffs, since ten other states have mortgage recording taxes….with apologies to Jimmy Buffet, ”˜You”™ve got fins on the left, fins on the right, and you”™re the only bait in town,” referring to the lawsuit.
“Florida and Georgia have mortgage recording taxes,” said Lois. “ but they cannot tax federal credit mortgages or their borrowers. The banks may not like it, but they live with it.”
Lois expects a decision on HVFCU”™s appeal to be decided later this year or in early 2011.