Today Richard W. Northcutt, a California real estate investor, 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. According to the court documents the primary purpose of the conspiracy was to suppress and restrain competition and to obtain selected real estate offered at these foreclosure auctions at non-competitive prices.Normally for stories like this we just publish the press release from the DOJ, FBI, etc and leave it at that. For this one I decided to write about the subject because what Richard Northcutt plead guilty to I have seen happen in foreclosure auctions for years and was always really bothered by what I saw. What did I see? The same exact thing described in this complaint. The conspirator’s (the speculators) would all designate a single bidder who would buy the property, bidding just a $1.00, or other minimal amount, over the opening bid by the lender…..then they would all go off to the side, or down the street, and have a “second auction” among themselves in which they would bid the house up to the “real” value. Then, the “profit” (being the difference between what the designated bidder bought the property for and what it was bid up to in the second auction) would be split amongst the participants (conspirators in DOJ talk) rather than go to the homeowner as it would have if there would have been a legitimate auction.
There were actually investors that made a living doing nothing more than showing up for the second sales and getting their piece of the “profit” without ever buying a house. Back when I attended foreclosure auctions myself years ago, I always refused to participate and told the others this was illegal and wrong….the answer I got was “we’ve been doing this for 20 years, it’s not illegal, we’re “partners” , blah blah….The really amazing thing is at a point even the attorney’s crying the sales knew this was going on and simply did nothing about it….hmm…what about that “officer of the court” thing?
The ironic thing is, the best I can tell, most of the foreclosure bid rigging took place in the 80’s and 90’s back when speculators dominated the foreclosure sales and before all the seminars had everyone and their brother becoming an investor and buying foreclosures. I would think if the Fed’s would have started their investigations twenty years sooner there would be a whole lot more cases to be writing about.
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