Feds are cracking down on foreclosure auction scams
SAN FRANCISCO — At the height of the financial crisis, bargain hunters would gather each week on county courthouse steps to bid on foreclosed properties throughout northern and central California.
The inventory lists were long, but the auctions were generally short affairs — often because real estate speculators were illegally fixing the bidding process.
In the past three years, federal prosecutors have charged 54 people and two companies in three states for bid-rigging during courthouse auctions of foreclosed properties. Most cases were in California, the state with the highest foreclosure rate during the crisis. Nearly identical rings were also broken up in Raleigh, N.C., and Mobile, Ala.
Working in concert, the would-be buyers would appoint just one person to bid on each property on the auction block, thus securing the “winning” bid. Minutes after the official proceeding was over, they would then conduct an auction among themselves, often on the same courthouse steps.
The conspirators would then divvy up the difference paid at the official auction and the private one.
Federal prosecutors say such schemes have operated for decades, once earning a few thousand dollars per property. But the explosion of foreclosures amid the country’s financial meltdown a few years ago upped illicit gains to millions of dollars. The scammers took money that would have gone to banks selling the foreclosed properties or homeowners who should have been compensated.
The bidding investigations are being driven by a special task force established at the U.S. Department of Justice in the wake of the financial crisis to combat mortgage fraud. The probes aim to “stop those who engage in illegal conduct that thwarts the competitive process, and take advantage of American consumers when they are most vulnerable,” said Assistant Attorney General Bill Baer, head of DOJ’s antitrust division in Washington, D.C.
Prosecutors say the circle of conspirators gradually widened at each courthouse: Firsttime buyers would be brought into the conspiracy as speculators attended the auctions. Those not in on the schemes were pressured not to return.
In the past two years, more than 30 people have pleaded guilty to participating in a series of courthouse bid-rigging conspiracies in northern California counties. An additional 11 have been busted in central California. Similar prosecutions have been carried out in Alabama, where eight people have pleaded guilty in the past two years. Five others have pleaded guilty in North Carolina since 2010 to operating a conspiracy around Raleigh.
Federal officials say they expect to charge more people in the coming months but that cases are expected to soon drop off.
Madeline Schnapp, an economist with PropertyRadar, a company that tracks foreclosures, said sales at auctions have fallen from a height of about 30,000 a month to about 5,000 as new laws have made it more difficult for banks to begin foreclosure proceedings.