Feds target foreclosure auction scams

Travis Toth (center rear) an auctioneer of trustee sales for Fidelity National, reads descriptions of foreclosed properties for sale as potential buyers contemplate bids during a foreclosure auction in March 2007 on the steps of the county courthouse in Norwalk, Calif.

SAN FRANCISCO — At the height of the financial crisis, bargain hunters would gather on county courthouse steps to bid on foreclosed properties throughout Northern and Central California. The inventory lists were long, especially in hard-hit areas. 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 originated in California, the state with the highest foreclosure rate during the financial 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.

That’s when a property’s true price would emerge. The conspirators would then divvy up the difference paid at the official auction and the private one.

The scammers took money that otherwise 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. Justice Department 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.

In the last two years, more than 30 people have pleaded guilty to participating in a series of courthouse bid-rigging conspiracies in Northern California counties. Another 11 have been busted in Central California.