Class Action Suit Raises Stakes In New York Mortgage Tax Challenge
NEW YORK-A group of Hudson Valley FCU members last week filed a class action suit claiming the credit union illegally collected thousands of dollars in mortgage recording taxes from them at closing, racheting up the stakes in the $2.7 billion credit union's own legal fight with the state over the levy.
The suit was filed in federal court, as opposed to state court, which just two weeks ago rejected the one-time IBM employees' credit union's challenge to the recording tax, an assessment of one-half percent, or 50 basis points on every mortgage, amounting to thousands of dollars on each home loan.
"Because of the pass-thru nature of it, the person who bears the loss is the person who is paying the mortgage," Mark Kindall, a lawyer with the Hartford, Conn., firm of Izard Nobel LLP, told Credit Union Journal.
In an odd way, the members' suit may end up aiding the credit union's own case, which asserts that a federal charter exempts Hudson Valley FCU from paying the tax. But a state court ruled two weeks ago that the tax is not assessed on the federal entity, but on the act of the transfer of property. Potential members of the class include not only the thousands of members of Hudson Valley FCU who paid the tax, but millions of New Yorkers who took out mortgages through a federally chartered credit union.
The new suit gives a face and actual damages to the Hudson Valley case, according to Kindall. In addition, a federal court may be more favorable to the argument asserting the exemption of the federal credit union charter extends to the New York state tax, he said. Also helping the credit union's case, which is expected to be appealed in state court, is the support of the U.S. Department of Justice, which has weighed in on behalf of the federal exemption from the state tax.
"Ultimately, this will benefit credit unions and benefit the customers of credit unions, just like it [the Federal CU Act] is supposed to," Kindall stated.
Lawyers for Hudson Valley FCU, based in the upstate city of Poughkeepsie, were not available to comment.