Federal Land Bank of New Orleans v. Crosland

Background

A Federal Land Bank asked a court to force the Montgomery County recording officer to record a first mortgage deed after the Bank paid the normal recording fee but refused to pay an extra state “privilege” tax of fifteen cents per $100. Alabama’s 1919 law required that tax and a certificate showing payment before a mortgage could be recorded, and made judges criminally liable for receiving un-taxed mortgages. The State Supreme Court upheld the tax and dismissed the Bank’s petition, reasoning the Bank could simply avoid recording if it chose.

Reasoning

The central question was whether Alabama could condition recording on payment of a state tax when federal law says such mortgages are tax-exempt. The Court explained that the Federal Farm Loan Act treats mortgages to Federal Land Banks as federal instruments exempt from state taxation, so a state may not use its control of the registry to impose a tax the federal law forbids. The opinion distinguished ordinary recording fees, which may be reasonable charges for a service, from a general tax collected by requiring registration. The Court found the Alabama law operated as a tax on mortgages that the State could not reach and reversed the state court’s decision.

Real world impact

As a result, county recording officers in Alabama may not demand the state privilege tax for first mortgages to Federal Land Banks; those federally exempt mortgages may be recorded upon payment of normal recording fees. The ruling enforces the federal exemption and protects federally chartered lenders and those who borrow from them in Alabama.