Eight real estate investors in Alameda and Contra Costa counties in California will face felony charges for bid rigging and mail fraud at public real estate foreclosure auctions[1]. The investors had agreed prior to the auctions not to bid against each other to keep the prices on properties low. Later, they planned to have a private auction in which they would all bid as they wished and the bidder who had won the property originally would get the proceeds or the eight investors would divide the proceeds instead of the lender who was selling the property receiving the additional monies.
Bid-rigging is a violation of the Sherman Antitrust Act and can be punished with fines up to a million dollars or twice the gain derived from the crime or the losses suffered by the victim. It also can bring 10 years in federal prison. Mail fraud can bring up to 30 years in federal prison and up to $1 million in fines. Do you think that these laws are fair, or should investors be able to conduct this kind of “second auction” if it means that more foreclosure properties are ultimately off lenders’ books?
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[1] http://www.mercurynews.com/breaking-news/ci_18389649
The antitrust act can’t apply to eight people when there are millions of other people free to bid on the properties. The banks are free to bid up to the amount that is owed to them, or to take the property back. Sounds like another example of the banks wining about the consequences of their own actions and not willing to take responsibility.
So… Let me see if I understand this entire picture. The lenders each had a chance to adjust the principle owed BEFORE they foreclosed on a motivated homeowner. If the lender agreed to adjust the principle owed and turned a non-performing asset into a performing asset and at the same time kept that homeowner in their home, this current investor issue would not exist. Yes?
Now at auction someone (who??) is concerned about how much a bidder will pay for the property because that someone is concerned about how much “overbid” results. Who gets the “overbid”?
How many foreclosure auction properties remain REO’s because the lender inflates their bid? Who wins in that case? Certainly not the neighborhood!! Vandalism and lower property values are the realities there!!
Listen, I understand the popular lament that the referenced homeowner reneged on the loan agreement and shouldn’t have bought more home than they could afford. But where is the accountability of the lending institutions that made these “creative financing” tools available to that borrower. What about the lenders who “turned their heads” on over-inflated appraisals ? Once the RE bubble burst, many factions were left with their financial manipulations totally EXPOSED!
So, it is what it is. Now let’s get real, stop the theoretical rhetoric, and get out of the way of the entrepreneurial market and let the real estate market fix itself. It’s pretty obvious the government can’t.
I agree with Ted.
In my market over 100 bidders show up 5-days a week to bid on properties on salesthat can run for 5-6 hours, so no so-called “bid-rigging” is possible.
The alleged “bid-rigging” situation arises from bank greed. The banks today want to get properties back for the lowest possible price, then hold the original borrowers liable for a deficiency judgment. If banks were to take back properties for the full amounts owed, in most cases they would get the properties back and the prices would not be attractive to so-called “bid-riggers”.
But the banks are as lazy as they are cheap. Instead of having a representative at the sale every day, (particularly in those counties where only a few bidders show up regularly – the banks know which counties these are) or at least instructing criers to slowly increase bids up to the full amount of their credit bid, the banks set a low opening bid, do no subsequent bidding,then bitch and moan when they don’t get top cash dollar for their properties.
As far as I am concerned, these sales are held in the full light of day and open to all. This is nothing like the situations the Sherman and other anti-trust acts were intended to prevent – secret, back-room deals made between individuals with “inside” information. Here everything is publicly disclosed in advance – all one needs is the knowledge of how to find it out.
They broke the law, they are to be held accountable and pay the fines, penalties or serve the jail time. Period.
Brian,
I think the Sherman Anti-trust Act was never intended to apply to this type of. Activity. It was meant to originally protect the little guy from being taken advantage of by big corporations. In this case, it’s actually having the opposite affect. It’s protecting the big banks (Once Again) from losing money.
I think that this law should not appy to investors even if they are going to hold their own auction.
Not that much different from wholesaling or just buying a property and putting it on the market. Get offers and sell to the highest/best offer.
My comment on this subject is very positive in that I think the American
people have had enough of criminal activity going on with those in high
places and those that are well endowed with finances. This kind of action
leave no room for the honest Joe who is trying his/her da**est to get ahead
in this rough and tumbling society. Moreover, this type of action only
make it hard for the men and women in today’s real estate market. Further,
the work put into consummating a deals without a doubt isn’t easy.
My opinion these characters that is breaking the law should be punished to
the fullest extent of the law. The trouble in our society is we don’t
really punish those with a little clout/money just a slap on the wrist.
Most get away with some light sentence or fine which is never paid.
So, If I buy a property at auction I can’t re-sell it via auction for more than I paid and keep the profit? How can you bid rig if you have no control over the auction or over whom else may bid in it? The government is about past its useful life.