Northern California Foreclosure Bid Rigging: Paying the Other Bidders to Stop Bidding

Northern California foreclosure bid rigging involved investors choosing who would win selected properties and negotiating payoffs for rivals to stop competing, according to the Justice Department’s account of the criminal case. The bidder who stepped aside could get paid while the mortgage holder and homeowner lost the benefit of that competition. For someone who knew the bidders or handled their payments, the auction price told only part of the story.

The Justice Department’s May 9, 2018 account describes conduct between 2008 and January 2011. Five real estate investors were convicted of bid rigging at foreclosure auctions in San Mateo County. Four were also convicted for conduct in San Francisco County. The department described an arrangement in which bidders agreed not to compete for selected properties, designated a winner and negotiated payments among themselves.

A Foreclosure Sale Was Supposed to Pay the Creditors

The foreclosure auction turned a property into money for the mortgage holder, other secured creditors and, when money remained, the homeowner. A higher competitive bid could therefore matter to people who had no part in the investors’ private arrangement.

An October 2014 criminal indictment in the foreclosure investigation explains the sale process. When California homeowners defaulted on their mortgages, mortgage holders could start foreclosure proceedings and sell the properties at public auctions without a court-supervised sale. A trustee typically oversaw the auction, which usually took place at or near the county courthouse. An auctioneer acting for the trustee sold the property to the highest bidder.

The proceeds then went toward the mortgage and other debt secured by the property. Any remaining proceeds went to the homeowner.

Suppressing the winning price meant less money flowing through the sale to those entitled to receive it. The indictment alleged that money went instead to participants in the scheme. The investors had found a way to pay one another out of competition that the sale was supposed to produce.

The Payoff Bought the Missing Bid

The Justice Department’s criminal-case account describes investors choosing a winner and negotiating payoffs for other bidders to stand aside.

The indictment alleged that participants agreed either not to compete or to stop competing after bidding had begun. They selected the investor who would win, withheld further bids and acquired properties at artificially suppressed prices. The agreement could therefore affect both who entered the bidding and who continued to push the price upward.

The payoff gave a bidder a reason to cooperate with the intended winner. Someone who would otherwise compete for the property could make money by allowing another investor to buy it.

The indictment also described an investor bidding and purchasing properties on behalf of another investor and others. That role matters when reading an auction result. The person making the bid could be acting for someone else, so we look at whose purchase it was and who arranged the payment for staying out.

The Auction Records Told Only Part of the Story

The criminal indictment separately alleged that participants concealed diverted money and caused false or misleading statements to appear in auction records. Those records mattered because trustees relied on them to distribute proceeds and transfer ownership of the properties.

In its mail-fraud allegations, the government described payments to scheme participants of money that otherwise would have gone to the people entitled to the sale proceeds. It alleged steps to conceal that diversion, followed by reporting the suppressed purchase price to those beneficiaries.

The indictment also alleged that participants caused trustees to mail Trustee’s Deeds Upon Sale and related documents.

In the alleged scheme, the trustee distributed the proceeds and transferred the property using records that concealed the bidders’ private payoffs.

How Is Bid Rigging Detected?

In a foreclosure scheme like this one, the connection between the agreement and the withdrawn competition is the central evidence.

For this foreclosure scheme, an auction history shows the bids, while someone inside the arrangement may explain the decisions behind them.

A bidder may know the conversation that selected the winner. A bookkeeper may know the payment that followed the agreement. Someone handling the auction paperwork may see the price reported to the trustee and the documents used to complete the sale. Those are different views of a transaction, and connecting them is the work.

The indictment makes the document comparison concrete. We would examine the auction records alongside communications about the intended winner, records of payments between bidders and the trustee’s sale documents. The property connects the bidding decision to the money and the paperwork.

Your knowledge of the business can explain a transaction that looks routine on a ledger. If you know why a rival stopped bidding or what a payment was for, that account can give the documents their meaning.

The Same Bargain in Vehicle Auctions

The EBLOCK scheme used fake dealer bids and confidential access, different mechanisms from payments to stop foreclosure bidding.

Would This Have Qualified Under Today’s Reporting Routes?

The Justice Department’s Antitrust Whistleblower Rewards Program can pay rewards for information about bid rigging. We assess whether it fits the auction arrangement you know about, including its connection to the Postal Service.

The EBLOCK auction matter produced a $1 million whistleblower award under a later program, distinct from the foreclosure defendants’ outcomes.

The foreclosure proceeds described here belonged to mortgage holders, other secured creditors and potentially homeowners. If your information concerns false claims involving government money, we assess that connection with you. A whistleblower case under the False Claims Act can pay 15% to 30% of what the government recovers.

You Know Why the Bidding Stopped

If foreclosure bidders were paid to stop competing, explain the auction, side payment and later division of property to our whistleblower experts.