Speaking of foreclosure trends and activity in San Francisco, according to bureau spokeswoman Julie Sohn, “last week the FBI conducted interviews and executed search warrants through the entire Bay Area as part of a long-term investigation of anti-competitive practices at trustee sales of foreclosed homes.”
The probe is shaking up the tight-knit world of investors who bid at these auctions. The issue, sources say, is that some participants allegedly pay others to refrain from bidding on certain properties to keep their prices low.
Bids are all cash; properties are sold as is, subject to existing liens and with no guarantees as to condition, so only deep-pocketed, experienced investors generally make bids, seeking properties that still have some equity that they can fix and flip, or hold onto for the long term.
Or as we noted last July with respect to whether or not auction sales are legitimate market comps: “It’s a comp for the all cash, no warranties, and no (official) inspections market. And that’s assuming no collusion or games on – or getting to – the courthouse steps.”
As long as no one is being prevented from bidding I don’t care if they conspire to screw the trustees.
Here’s a free market way for banks to kick the can down the road and defer their losses. Let the banks offer their reos at full price with guaranteed 30-yr fixed financing. Let bidders bid not on price but on the interest rate they’re willing to pay. Banks avoid having to write off a loss and get a small income stream to boot.
i posted earlier about how there were two housing markets. one with buyers who are using cash to buy distresssed properties.
and another market with nondistressed sellers selling to buyers who need financing.
it was obvious the sale prices varied signifigantly and the cash buyers were making a killing were doing well i just never realized how well.
diemos, read the Chronicle article by Carolyn Said that the editor linked to. People outside the colluding group were being prevented from bidding, either by being paid off to not bid or being threatened.
paid off = ok
threatened = not ok
Just as I said.
Paid off is not OK, bad ethics man
diemos, I am dying to hear your argument explaining why being “paid off” not to bid is okay.
Perhaps you have in mind a clever, elegant, University of Chicago, Neoclassical School of Economics, efficient-market hypothesis-type argument that the amount paid to a prospective bidder that ultimately results in him not bidding simply must be equal to the difference in the amount that the “winning” bidder “won” the auction for and the amount that the auction would have been won for if the paid-off prospective bidder actually participated in the auction. Because markets are always perfect.
This’ll be interesting.
Something like that.
I’ll just fall back on “libertarian free market economics”. As long as no one in the transaction is being coerced “it must be ethical”.
Diemos, I appreciate many of your posts, but this last one is pretty disappointing.
This “libertarian” system always ends up creating a few ruthless robber barons. They’re the last roaches surviving a very toxic environment and this is not anything I would want as a society.
The bank can still make the highest bid and sell it as an REO. It can’t be surprising that some don’t cry too many tears over that scenario.
diemos, go back to school
Apparently the phrases “bid rigging”, “commercial fraud”, “antitrust violation” and “illegal” are lost on some folks.
The investigation is a “day late and dollar short” (no pun intended). The bubble has already popped. The orignal money is gone. The trillions in bailout money (TARP et all) has already been marked for pick up for whoever has the political clout to get it. First,let’s regulate the derivatives market, resurrect Glass-Steigal (sp, and close the corporate tax loopholes. Second, let’s pull some of the FBI agents back from homeland security duty and put them back on white collar crime beat. All we can do at this point is prevent the next big financial crime wave from occuring (which will probably occur in the area of selling of public infrastructure).
I have been told plenty of stories of bidders being threatened with both physical and legal harm (we’re going to sue you unless…) but I have never witnessed it first hand.
I have seen plenty of collusive behavior on the steps in San Franciso and tons across the bay.
Here’s a proposal and I offer it for readers to poke holes into.
Recognize that an auction on the steps is a form of a market. Sure, a primitive medieval style market, but a market nonetheless. In order for markets to function efficiently (and that includes without corruption) it needs to be large enough to slip out of the grip of corruption and collusion. So create a clause that a minimum number of credible bidders must show up before the auction can begin. Credibility can be verified by thumbing through their stack of cashier’s checks or alternatively weighing their slugs of gold on a scale.
If the auction fails to draw enough credible bidders then postpone the auction and require the bank to sweeten the terms to attract more bidders. The most obvious way is to offer some basic financing. Bidders who want to take advantage of that financing must get pre-approved before the next auction. If it fails to attract bidders again, postpone and sweeten the terms more. Rinse and repeat.
I’m sure that there must be some very basic problem with this idea otherwise it would be implemented already.
right. paying others to not bid is collusion. this practically by definition distorts the market and makes it inefficient. in this case, buyers get a better price but the seller does not get the fair market price which they would otherwise have gotten. it’s pretty easy to see how inefficient it makes the market.
Milkshake,
One basic flaw to your proposal:
Say Joe Schmoe sees his dream home and wants to purchase it on the steps. Market is 600K and price is 500K. Say it needs 50K in work.
Professionals will stay away from this deal as there’s no money to be made and the only bidder will be retail guy. It would be unfair to this guy to postpone the auction for lack of bidders.
This is tricky business.
That would lead me to conclude that the price should be lowered.
not if you have one person ready to buy. All you need is one and the market is collection of 1s
right. If you forced the price lower so as to attract enough sharks, then Joe Schmoe will be prevented from buying even though he was ready, willing and able to pay the (higher) price that the home was previously available for, but wasn’t sold at due to lack of enough willing bidders. If the auction then produces a lower price than the price that Joe was willing to pay when the sharks weren’t interested, then the auction didn’t produce the optimal price, which is what it was supposed to do in the first place.
Speaking of foreclosures; here is a little foreclosure flip action:
2035 Greenwich St
http://www.redfin.com/CA/San-Francisco/2035-Greenwich-St-94123/home/562098
I want to take back what I wrote at 2:35 PM; the last part didn’t make sense at all. Joe could always outbid “the sharks” who were previously uninterested, so the auction presumably won’t produce a lower final price than one with fewer bidders. Shouldn’t have skipped the coffee today.
Yeah, unless the “sharks” are intimidating.
A more modest proposal: move the auction to the quiet side of City Hall, away from the wind and noise of Van Ness.
Amazing what the FBI can accomplish when it actually does its job. Wonder if they’ll try to roll up the chain any to the bank personnel who seem curiously uninterested in maximizing the value received for their property, or to the county officials who insist in using 19th century technology to clear the properties.
Afte being told from many appraisers, a comp is a comp, even if it is a short sale, foreclosure sale, and or any kind of sale is a comp.
I have always been told your next foreclosure will always be your next low comp.
Funny how they chose to go after the 40 thieves at the sales vs the multi-million dollar bonuses on Wall Street.
Paying someone to walk away from a sale has been going on as long as I have been around them. 40 years now. No I am not that old, I just started going to sales young!
Oh, they went after the Wall Street guys. A lot of those cases are pending.
A lot of the Wall Street guys did things that were not, strictly speaking, subject to criminal sanctions. You’ll recall that Joseph Cassano’s organization, AIG Financial Products, ran AIG into the ground selling credit default swaps for which the parent company didn’t have anywhere close to enough collateral. Was he investigated? No. Was he exposed to civil litigation? No.
Cassano was kept on as a consultant after he retired in February 2008 — at a rate of $1 million per month. In other words, he was already a rich man before the crisis and after the crisis he played a key role in creating, he’s even richer, all at taxpayer expense.
Fifth guilty plea:
“Yama Marifat, 38, of Pleasanton, Calif., pleaded guilty to conspiring with a group of real estate speculators who agreed not to bid against each other at certain public real estate foreclosure auctions in San Joaquin County.
[…]
To date, including Marifat, five individuals have pleaded guilty in U.S. District Court for the Eastern District of California in connection with this investigation. On April 16, 2010, Anthony B. Ghio pleaded guilty to participating in a conspiracy to rig bids at public foreclosure auctions held in San Joaquin County. On June 24, 2010, John R. Vanzetti and Theodore B. Hutz pleaded guilty to participating in the conspiracy. On Feb. 4, 2011, Richard W. Northcutt also pleaded guilty to participating in the conspiracy.
”
http://www.StopFraud.gov/news/news-03042011.html
anon.ed wrote:
Quite right on that point. And the long awaited punishment might even get meted out to the most notorious pushers of mortgage paper. From Associated Press on Mar 17th, FDIC sues WaMu executives over bank failure:
Later on, the piece mentions that the FDIC sued four former executives of the also notorious failed IndyMac Bank last July.