The Real Estate Bloggers

Collusion at a Foreclosure Auction Leads To Charges

Posted: 05 Jul 2011 08:08 AM PDT

Foreclosure auctions are a large part of the real estate landscape these days. The opportunity to buy a home at a huge discount is attractive to anyone in the marketplace. For investors it is the key to their success. The popular saying is, “You make your money when you buy the house.”

That is why charges of collusion in Alameda and Contra Costa County between 8 real estate investors at the local foreclosure auctions is hard to take. Instead of competing for the homes, these investors colluded to not bid against each other and then buy the homes at even a great discount.

Between May 2008 and January 2011, federal prosecutors allege that eight real estate investors conspired to rig bids pursuant to agreements not to bid against one another at public real estate foreclosure auctions in Contra Costa and/or Alameda counties in Northern California. The collusive activity occurred independently in each county, and some individuals only participated in the conspiracy in one county. The conspirators appeared to intend to suppress and restrain competitive bidding in order to obtain the desired realty below what would otherwise have been a bona fide public auction price. via Street Sweeper

What makes this even worse is that the men agreed to not compete in the public bidding process to get the homes at the lowest possible price. They bought the homes at a rock bottom price at the auction then had a private auction between themselves to set the real price. The profits from the private auction were then divided up in cash.

Fair Market

Think in these terms. A region which has a suffering real estate market now has the foreclosure prices artificially depressed. The banks then look at larger losses and this also impacts their motivation to resolve foreclosures. The system breaks down and the loser is real estate market at large.

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Collusion at a Foreclosure Auction Leads To Charges