STATE OF WISCONSIN
TAX APPEALS COMMISSION
WILC/2675 N. MAYFAIR ROAD DOCKET NO. 17-T-154
LIMITED PARTNERSHIP,
Petitioner,
vs.
WISCONSIN DEPARTMENT OF
REVENUE,
Respondent.
RULING
AND ORDER
Per Curiam.
This case comes before the Commission for decision on
simultaneous Motions for Summary Judgment. The Petitioner,
WILC/2675 N. Mayfair Road. Limited Partnership, a Wisconsin limited liability partnership,
appears by Attorney Paul J. Hinkfuss. The Respondent, the Wisconsin Department
of Revenue (“the Department”), is represented by Attorney James W. McNeilly,
Jr. The parties have submitted a Stipulation of Facts, and both parties have
filed briefs in support of their respective Motions.
The
Commission finds the real estate transfer in question was not exempt from the Real
Estate Transfer Fee, and, therefore, upholds the Department’s assessment.
FACTS
The
following facts, stipulated to by the parties in the Joint Stipulation of Facts,
demonstrate that there are no material facts at issue and that this case is
ripe for summary judgment.
Jurisdictional Facts
1.
On or about December 31, 2014, an eRETR (electronic real estate transfer return) was filed
with the Milwaukee County Register of Deeds reporting the December 30, 2014
conveyance of real estate (“Property”) from Grantor, WILC/2675 N. Mayfair Road
Limited Partnership (“WILC”), to Grantee, MSC 2003-IQ4 2675 N. Mayfair Road LLC
(“MSC”), via Special Warranty Deed. The conveyed Property consisted of the land
and improvements valued at $7,157,443.00. The eRETR
indicated a transfer fee due of $0.00 and claimed a transfer fee exemption of
"14." (Stip. Jurisdictional Facts (“SJF”), ¶ 1, Ex. 1.)
2.
On November 30, 2016, Respondent issued a
Notice of Additional Assessment of Real Estate Transfer Fee in the total amount
of $32,205.55, including interest and penalty, to WILC. (SJF, ¶ 2, Ex. 2.)
3.
By letter dated December 7, 2016, Petitioner
timely appealed the assessment notice to the Department, claiming that the
conveyance was exempt from the transfer fee under exemption 14 of Wis. Stat. §
77.25. (SJF, ¶ 3, Ex. 3.)
4.
On March 22, 2017, the Department issued a
Notice of Action denying the Petition for Redetermination. (SJF, ¶4, Ex. 4.)
5.
On May 24, 2017, Petitioner filed a timely Petition
for Review with the Commission appealing the Department’s Notice of Action
denying Petitioner’s Petition for Redetermination. (SJF, ¶ 5.)
Evidentiary
Facts
6.
The Petitioner was at all times material
hereto a Wisconsin Limited Partnership with its offices and principal place of
business located c/o Wisconsin Investments, 19000 W. Bluemound Road,
Brookfield, WI 53045. (Stip. Evidentiary Facts (“SEF”), ¶ 1.)
7.
On or about May 16, 2014, Wells Fargo Bank
National Association (“Wells Fargo”) filed a Summons and Complaint in Milwaukee
County Circuit Court, Wisconsin, as Circuit Court Case No. 2014CV004191 against
WILC seeking foreclosure of the Property. (SEF, ¶ 3.)
8.
On or about December 5, 2014, a judgment of
foreclosure was entered in Milwaukee County, Wisconsin, against WILC and in
favor of Wells Fargo in Circuit Court Case No. 2014CV004191. (SEF, ¶ 4.)
9.
WILC and Wells Fargo entered into a Deed in
Lieu of Foreclosure Agreement, dated December 20, 2014 (“Deed in Lieu
Agreement”). (SEF, ¶ 5, Ex. 5.)
10.
On or about December 30, 2014, in lieu of a Sheriff’s
Sale and a Sheriff’s Deed on Foreclosure and pursuant to the Deed in Lieu
Agreement, WILC executed a Special Warranty Deed to MSC; that deed was
subsequently recorded. (SEF, ¶ 6.)
11.
The conveyance of the Property resolved all
of Wells Fargo’s claims against WILC and, on February 2, 2015, Circuit Court
Case No. 2014CV004191 was dismissed with prejudice. (SEF, ¶ 7.)
12.
The mortgage which was the subject of the
foreclosure was never assigned to MSC. Wells Fargo held the mortgage and a
satisfaction of the mortgage was recorded. (SEF, ¶ 8.)
13.
MSC is a separate entity from Wells Fargo and
is a subsidiary of Wells Fargo, which is the sole member of MSC. (SEF, ¶ 9.)
14.
While there are no regulations prohibiting
Wells Fargo from holding assets or receiving the Property in a deed in lieu
transaction, lenders such as Wells Fargo Bank National Association commonly
form subsidiary entities to acquire and hold title to properties conveyed by
deed in lieu of foreclosure. (SEF, ¶ 10.)
Applicable
Statutes
Wis. Stat. § 77.22. Imposition of
Real Estate Transfer Fee.
(1) There is imposed
on the grantor of real estate a real estate transfer fee at the rate of 30
cents for each $100 of value or fraction thereof on every conveyance not
exempted or excluded under this subchapter. . . .
Wis. Stat. § 77.25. Exemptions from
fee. The fees imposed by this subchapter do not apply to a conveyance:
(14) Under a
foreclosure or a deed in lieu of a foreclosure to a person holding a mortgage
or to a seller under a land contract.
ANALYSIS
The
underlying facts are not in dispute. The parties have submitted a Stipulation
of Facts, and both parties have filed motions for summary judgment. Summary
judgment is appropriate if the pleadings, depositions, answers to
interrogatories, and admissions on file, together with affidavits, show there
is no genuine issue as to any material fact and that the moving party is
entitled to judgment as a matter of law. Wis. Stat. § 802.08(2). The effect of
simultaneous motions for summary judgment is an assertion that the material
facts are not in dispute and only questions of law remain for determination. Lindner
1991 Convertible Trust v. Dep’t of Revenue, Wis. Tax Rptr.
(CCH) ¶ 402-334 (WTAC 2019).
Assessments
made by the Department are presumed to be correct, and the burden is on the
Petitioner to prove by clear and satisfactory evidence in what respects the
Department erred in its determinations. Calaway v. Dep’t. of
Revenue, Wis. Tax Rptr. (CCH) ¶ 400-856 (WTAC
2005), citing Puissant v. Dep’t. of Revenue,
Wis. Tax Rptr. (CCH) ¶ 202-401 (WTAC 1984). Tax
exemptions, deductions, and privileges are matters of legislative grace and are
strictly construed against the taxpayer. Ramrod,
Inc. v. Dep’t. of Revenue, 64
Wis. 2d 499, 504 (1974).
“While
the ‘fee’ is not a ‘tax’, it has similar characteristics, such as having a
value or ‘measure’, a statutorily imposed rate, and the moneys being used to
fund state (and county) operations or programs. Exemptions from this fee are,
similarly, narrowly construed against the claimant.” Lindner, quoting Selle v. Dep’t of Revenue, Wis. Tax Rptr. (CCH) ¶ 400-410 (WTAC 1999).
Under
the Wisconsin real estate transfer fee statutes, “a deed in lieu of foreclosure
to the person holding the mortgage” is exempt from the fee. Wis. Stat. §
77.25(14). In this case, the parties have stipulated that 1) Wells Fargo held
the mortgage; 2) Wells Fargo did not assign or otherwise transfer the mortgage
to MSC before the Property was transferred to MSC;[1]
and 3) While MSC is a subsidiary of Wells Fargo and Wells Fargo is its sole
member, MSC is a separate entity from Wells Fargo.
Per
the Deed in Lieu Agreement, Petitioner was required to transfer the Property,
not to the mortgage holder, Wells Fargo, but to a separate entity, MSC. Wells
Fargo remained the mortgage holder at the time of the conveyance. Thus, MSC was
not the “person holding the mortgage.”
Petitioner’s
primary contention is that Wells Fargo and MSC are “one and the same.” The
Petitioner relies on what Petitioner describes as “common practice in the
financial industry.” (Pet. Br., p.4.; SEF, ¶ 10.) This common practice, by Petitioner’s
own description, negates the “one and the same” argument. According to “common
practice,” lenders, like Wells Fargo, do not take title in their own names.
Instead, they create new entities with the precise purpose that they are
separate entities. These separate entities, such as MSC, hold real estate
because “[a]n entity formed for the purpose of holding title shields the lender
from such liability.” (Pet. Bf., p. 4.) Thus, the nature of the subsidiary as
being separate and distinct from the lender is paramount. Entities designed to
hold title, such as MSC, must be completely different entities from the lender,
rather than “one and the same.”
Without
authority, Petitioner parses the distinction between entity and subsidiary to
say that the “one and the same” concept is “for the purposes of the Exemption.”
Petitioner asserts that, for the purposes of the transfer fee, the subsidiary
should be considered a disregarded entity. (Pet. Br., pp. 4-5.) Petitioner dismisses
the fact that MSC is a separate entity – and not the actual mortgage holder – as
simply a “distinction without a difference.” (Pet. Br., p. 6.) This assertion
rings of having one’s cake and eating it too.
Wells
Fargo is separate and distinct from MSC. Property owned by an LLC is not owned
by its members. Wis. Stat. § 183.0701(1). Thus, although Wells Fargo held the
mortgage, MSC did not. Petitioner conveyed the Property to the MSC, not to
Wells Fargo. MSC is not Wells Fargo, and Wells Fargo is not MSC.
The
transaction in this case is from Petitioner, not to the mortgage holder, but to
the mortgage holder’s subsidiary. Petitioner stresses that Wells Fargo is the
only member of MSC and intimates that such a relationship transforms MSC into
the mortgage holder for the purpose of this exemption. No caselaw supports this
position.
This
case is not one of first impression. The Commission considered a similar set of
facts in Regency Partners, Ltd. Partnership v. Dep’t of Revenue, Wis.
Tax Rptr. (CCH) ¶ 400-130 (WTAC 1995). As in this
case, the partnership in Regency, which owned the properties, defaulted
on the mortgages and the bank commenced foreclosure proceedings. The parties
then entered into an agreement in lieu of foreclosure under which the
partnership agreed to transfer title to the properties to the bank's
subsidiary. In contrast to this case, however, the bank in Regency then conveyed
the mortgages to the subsidiary. A day later, the partnership deeded the
property to the subsidiary. When the Department of Revenue attempted to deny
the Wis. Stat. § 77.25(14) exemption, the Commission explained, in no uncertain
terms, that the exemption did apply as long as the assignment to subsidiary
occurred before the transfer of the property. Even though the assignment was
only one day before the deed conveying the property, that was enough for the
exemption to be valid.
In
the case at hand, Wells Fargo never conveyed the mortgage to MSC but
nevertheless required WILC to transfer the property to MSC. At the time of the
deed, unlike the subsidiary in Regency, MSC was not the mortgage holder.
Thus, the exemption does not apply.
Petitioner
asks us to note that the Department occasionally does allow the exemption when
property is transferred to a nominee of the mortgage holder. Petitioner cites
to a 2016 update to an October 2008 article published in RETN (Real Estate
Transfer News) regarding various aspects of Sheriff Sales, which outlined three
scenarios under which an exception may be made to allow the Wis. Stat §
77.25(14) exemption:
The Department of
Revenue's position on the exemption applying without having to provide or
record an “assignment” of mortgage or lien is as follows:
1. The plaintiff
assigns to an insurer such as HUD, Fannie May, Freddie Mac, VA, Etc.
2. To another lender
who may actually be holding the mortgage and plaintiff was acting as servicing
agent.
3. To a subsidiary of
the lender due to regulations not allowing lender to hold assets. Note:
this is a new position the Department is taking allowing the assignment to the
lender's subsidiary regardless if the assignment occurs before or after the
sale is confirmed by the court. In the past, if the assignment was after the
sheriff's sale, a transfer fee was due on a conveyance to a subsidiary under
Tax. 15.03, Wis. Adm. Code.
When the Sheriff's
deed is assigned to a party not having a relationship as above and appears to
be a “third party”, the assignment of the mortgage or lien must be dated
prior to the Sheriff Sale.
Wis. Tax Rptr. (CCH)
¶ 401-132. Real Estate Transfer News (RETN), Sheriff Sales, Wisconsin
Department of Revenue (October 2008).[2]
The
third exception, which appears to expand the Regency holding to allow a
broader timeframe for the assignment of the mortgage to the entity to which the
property is deeded, potentially applies. In this case, the conveyance was to a
subsidiary of the lender, but Petitioner has offered no regulations or law that
would not allow Wells Fargo to hold the Property. Even if that were true, there
would still have to be an assignment at some point, even as late as after an
eventual sheriff’s sale. The mortgage in this case was never conveyed to MSC.
The exceptions which might allow the Wis. Stat. § 77.25(14) exemption do not
apply.
In
its response brief, Petitioner asserts that MSC acted as Wells Fargo’s agent in
receiving the Property and that the mortgage holder, Wells Fargo, therefore,
took “constructive title.” That argument is inconsistent with Petitioner’s
earlier explanation of the “industry practice” of establishing separate entities
to hold title as a shield against liability. In invoking agency principles,
Petitioner now argues that Wells Fargo actually does “constructively” hold
title. Constructively holding title through a controlled agent would seem to
vitiate the very reason for which Wells Fargo engaged in its liability avoidance
strategy, since principals are generally liable for the liabilities of their
agents. In any case, we reject the agency claim as unsupported and
underdeveloped. The parties have stipulated, that, while MSC is the “designee”
to take title, MSC is a separate entity. In this case, the separate entity, not
the mortgage holder, took title in its own name. Because Petitioner did not
deed the property to “the person holding the mortgage,” the exemption does not
apply.
Finally,
Petitioner argues that enforcing the precise wording of the statute is unjust
because this type of taxpayer is the type for whom this exemption was intended.
This argument is one of equity. While we may agree that the Wis. Stat. § 77.25(14)
exemption was likely enacted to assist property owners in default, such as the
Petitioner, the Commission’s role is to interpret the statutes as written. “[I]it
is not our role to attempt to divine the
unwritten intentions of the legislature. The Kalal
court was clear on this point: ‘We have stated time and again that courts must
presume that the legislature says in a statute what it means and means in a
statute what it says there.’” Microsoft v. Dep’t of Revenue, Wis. Tax Rptr. (CCH) ¶ 402-163 (WTAC 2017), citing State ex rel. Kalal v. Circuit Court for
Dane County, 2004 WI 58, 271 Wis. 2d 633, 681 N.W.2d 110. As written, the Wis.
Stat. § 77.25(14) exemption does not apply to the transaction at issue because
MSC was not the “person holding the mortgage.” We cannot extend exemptions to
situations or taxpayers not covered by the plain language of the statute.
CONCLUSIONS
OF LAW
1.
No material facts are in dispute, and the
stipulated facts provide sufficient basis upon which to grant summary judgment.
2.
Because Wells Fargo, not MSC, was the holder
of the mortgage at the time of the conveyance of the Property, Petitioner is
not entitled to claim the conveyance was exempt from the transfer fee under
Wis. Stat. § 77.25(14).
ORDER
Based
on the foregoing, it is ordered that
1.
The Department’s Motion for Summary Judgment
is granted.
2.
Petitioner’s Motion for Summary Judgment is
denied, and the Petition is dismissed.
Dated
at Madison, Wisconsin, this 28th day of January, 2020.
WISCONSIN
TAX APPEALS COMMISSION
Elizabeth
Kessler, Chair
Lorna
Hemp Boll, Commissioner
David
L. Coon, Commissioner
ATTACHMENT: NOTICE OF APPEAL INFORMATION