Investors Learn Hard Way That Foreclosure Auction Scams Don’t Pay

Posted by Patrick Barnard on June 03, 2013 No Comments
Categories : Required Reading

13891_auction Investors Learn Hard Way That Foreclosure Auction Scams Don't Pay Federal authorities are reportedly cracking down on the illegal practice of rigging bids on foreclosed properties at bank auctions.

According to a report in USA Today, federal prosecutors have charged 54 people and two companies for illegal bid-fixing in the past two years. Most of those cases originated in California, but rings were also broken up in Raleigh, N.C., and Mobile, Ala.

With this type of scam, a group of investors appoints a single individual to bid on their collective behalf at an auction. Once that individual secures the winning bid on a foreclosed property, the investors then hold a second ‘private auction,’ at which the property's true price emerges. The conspirators then share among themselves the difference paid at the official auction vs. the private one.

Federal authorities have known about these scams, which typically yield the crooks a few thousand dollars per home, for decades, according to the report. Prior to the housing meltdown, it didn't occur as often simply because there weren't as many foreclosed properties being auctioned. However, following the housing crash in 2008, when tens of thousands of foreclosed properties flooded the market, the scam became much more widespread, as crooks came to realize they could siphon away millions of dollars by participating in as many auctions as possible.

In the last two years, more than 30 people in northern California and another 11 in central California have pleaded guilty to participating in these scams, many of them first-time offenders, according to the report. In addition, eight people have pleaded guilty to operating bidding scams in Mobile, Ala., and another five in North Carolina since 2010.

These scams have been on the decline in recent months as the number of home foreclosures wanes, due to the rebounding economy and the availability of refinance options for distressed homeowners.

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