No crisis can be let go to waste.
The Foreclosure Crisis, spawned by the Financial Crisis and the Housing Bust, became a veritable money machine for some folks. And it just keeps on giving.
This one is still happening in the Bay Area of California where home prices have shot through the roof since the Foreclosure Crisis. The folks who could buy homes cheaply at auction during the Foreclosure Crisis have made a killing. And buying them cheaply was apparently very important for some folks…
Yesterday, after a week-long trial, a federal jury in Oakland, California, convicted real estate investor Glenn Guillory for “his role in a conspiracy to rig bids at public foreclosure auctions held in Contra Costa County,” according to the California Department of Justice.
The jury convicted Guillory, who worked out of an office in Walnut Creek, of “conspiring to rig bids” at auctions were banks sold foreclosed homes. The conspiracy began as early as June 2008 and lasted until about January 2011. Guillory was charged in an indictment returned by a federal grand jury in December, 2014.
The evidence at trial showed that Guillory and his co-conspirators agreed not to compete for real estate sold at foreclosure auctions in Contra Costa County. The conspirators negotiated payoffs for agreeing not to compete and held second, private auctions known as “rounds” to determine the amounts of the payoffs for the individuals who had participated in the bid suppression.
The bid-rigging conspiracy involved the purchase of hundreds of foreclosed homes sold at these auctions. It had the effect of suppressing prices obtained at auction, thus lowering the acquisition costs for the investors such as Guillory and raising their future profits. The conspiracy thereby lowered the proceeds from the auction that were used to offset the outstanding mortgage debt attached to the property. And, in the unlikely event that there would be any remaining funds, the conspiracy lowered or wiped out any amounts paid to the defaulting homeowner.
Guillory will be sentenced on August 2. The conviction carries a maximum possible sentence of 10 years in prison.
The continuing investigations into bid-rigging at public foreclosure auctions in the Bay Area counties of Alameda, Contra Costa, San Francisco, and San Mateo are conducted by the Antitrust Division’s San Francisco Office and the FBI’s San Francisco Office. And there have been some successes: by now, 65 people in the Bay Area have either pleaded guilty to bid-rigging at public foreclosure auctions or have been convicted after trial.
And it’s not over: according to the California Department of Justice, “Indictments are pending against several other real estate investors who participated in the conspiracy.”
Foreclosure auctions became a huge business. Wall Street’s biggest private equity firms, along with smaller specialized firms and other investors purchased their housing stock at these auctions in the booming buy-to-rent scheme. For example, Invitation Homes, founded for that purpose by private-equity firm Blackstone, acquired over 48,000 single-family homes in just 12 urban areas, funded with nearly unlimited financial resources, including government guarantees on some of its debt and its IPO this January. Because, when it comes to money, no crisis can be let go to waste.
To lure more residential property investors into the US, as if there weren’t already enough, the second largest US brokerage has decided to chase after Chinese money on a scale never before seen. Read… Warren Buffett’s Berkshire Hathaway Will Market US Homes in China
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I am sure this is just the tip of the iceberg in the fraud surrounding housing in the bay area.
.. which then makes one wonder how far across the country this will spread as well .
The edge of the “swamp” does not stop at the DC boundaries, it encompasses the entire country and runs deep.
I lived in Arizona for a while.
Don’t do that, kids.
California has all sorts of protections in place that you don’t think about until you find yourself somewhere where they don’t exist.
It’s a pretty common thing for someone to buy a house in AZ from a nice couple, etc yadda yadda house is nicely staged, pics of the nice family’s kids on the mantel, etc. Except those nice people don’t own the friggin’ house! The house is owned by someone else who’s off on vacation. Inconceivable? Not in flyover country.
So yeah, if there’s rottenness in California, I shudder to think what’s going on in flyover country.
CA leads the nation in housing, realtor, mortgage crimes.
In flyover country we use a title company and insure the transaction. What are you talking about?
It’s sad because it seems the more overtly corrupt a country (government and business) is the less prosperous the people (general pulic) are. You can look around the globe and see many example of this.
Are you observing this to?
Just take a look at any housing sale paperwork. You’ll find fraud. Here in Seattle, it’s expected.
Naomi Klein nailed years ago: Disaster Capitalism.
Sorry, should read, “…nailed it…”
I used to go by the Oakland court house steps (lake merrit side) and watch the bidding, same people all th time
I pay my competitors so that they do not compete with me, what’s wrong with this?
Nobody was forced against their will, and there is no sub group of people having an edge against the public like insider tradings.
It is just everybody going to the market agrees with each other not to pay high prices.
Am I missing anything here? Do the banks have to point a gun at all the buyers and say “pay high prices” even all buyers agreed with each other to pay lower prices?
I am confused.
There are many legal mechanisms that ensure clear markets — without that, cartels and monopolies tend to form, create barriers to entry that maintain their market position, and eventually cause their owners to reap outsized profits.
Very little about the law is moral — this is a law that is set up to make sure that people who want to profit compete against each other, and not against the seller.
You have never heard of cartel buyers, right?
Your points are valid, but those applies to organized sellers. It is difficult to organize buyers since buyer pool is large and seller can control minimum selling price above cost.
JZ: Because of a couple of little things like collusion, antitrust, and conflict of interest for starters.
It’s called bid-rigging. And it’s a crime.
In Germany, it was once the law that being jewish is a crime and it is punishable by death. We have to have a bit of coneicnece to question the law.
Organized selling and jack up prices is a crime, and yet, AT&T and verizon work with each other and set the prices. OPEC? Not to mention those 10 people FED FOMC committe rigging interest rate and debt market?
Organized bidding is different from organized selling since buyers do not control supply and there is unlimited buyers while sellers do control supply and usually competitors are just a few. All the sellers need to do is to set a minimum acceptable price and be done with it.
This is against my sense of fairness. Even i am the seller and i know there is a rigging going against me, all i need to do is to put a minimum price or reach to a bigger buyer pool.
Plus, buyers are taking a risk no additional bidders will show up outside of their group to out-bid them. I agree with JZ, there is no crime here. It’s the same thing with cartels from the seller side. As long as their is open entry into the market there is incentive for people to enter the market to break the cartel.
” In Germany, it was once the law that being jewish is a crime and it is punishable by death. We have to have a bit of coneicnece to question the law ”
Your ludicrous analogy JZ is the very epitome of irrelevancy as well as offensive hanging tenuously on the precipice of bigotry and anti semitism .
As for ‘ fairness’ ? Sorry JZ but your so called sense of ‘ fairness ‘ is more than a bit flawed as well as embedded deeply within the framework of Anarcho – Capitalism which by its own definition is anything but ‘ fair ‘ .
Would this still be a crime if the conspirators formed a corporation or LLC? That would achieve the same effect, and does not seem to be illegal, yet!
Its a crime when sellers do it the other way to hold up prices in foreclosures.
It’s a crime when its done in contract tenders for services to make the contract letter pay more for the service
Its not a crime to from a buying group, then divide the purchases among the group.
Unless the group starts pushing up the price considerably above what they would pay from any small independent buyers who bid against them, or prevents small independent buyers from budding (generally with muscle).
It is a crime when the Auctioneer, relator, valuer, and buyer, collude to sell at a low price.
The article and conviction notice are not very explanative of how the offence was committed.
Aubrey McClendon is (dead) poster child for bid-rigging.
The crime here was that they were small fish, and they knew it. First, they have to get too-big-too-fail; that changes everything.
So you are confused.. I see 2 options here. It could be that you were a wall street shark and therefore you would benefit from this rigged scheme, so you would feel the need to defend it.
The other option is far more likely and straightforward. You are just a bit dumb. You see yourself as a miniature capitalist but you are just another screwed worker who does not know where his/her place really is.
The last option would be sad, very sad. Poor thing.
I can not speak for everybody, but for myself, getting to know my place and stuck at it is against my nature.
I am curious and I like to ask around and move around.
If this makes you sad, I can NOT help.
I admire your stoic, relaxed response to a biting provocation. Congrats. Other folks would have lost their cool.
And one day you will be as rich as Bill Gates. You just have to believe it and eventually it will become true.
Don’t give up, buddy. The market will deliver for those who really deserve it. After all, it’s just a matter of effort and hard work.
And Wolf, it was indeed a cool nice relaxed answer, but that does not change the fact that one of the 2 options that I exposed must be true.
Too bad.
I think it’s better not to speculate about the person behind the comment. Only JZ knows what JZ is like. It’s great to disagree with the substance of a comment, especially if you have good support for it, and it’s great to have a debate on issues. But going after an individual you don’t know anything about, or speculating about their past or personality or intelligence is not helpful.
Everyone falls into this trap from time to time, including (regretfully) me :-]
You are right Wolf, I have to concede. I guess that I lost my cool with his utterly cynical post. I just cannot stand anarcocapitalists.
Well, in the end almost everyone loses something when our society turns into a free for all arena (as free as a rigged system can be).
Its called ‘ Price Fixing ‘ or in this specific case Bid Rigging which by all and any laws including the most fundamental laws of Capitalism is illegal
HFT is illegal?
It concerns computers so it skates. Most law is still stuck in the early 20th century, and I think I’m being generous here.
Remember that US Rep. Jim Sensenbrenner (R-Wis.) said that “Nobody’s got to use the internet”, so it’s not like these electronic geegaw new-fangled thingies are important or anything, right?
If the politicians actually knew what it was they were supposed to do, they would have banned IoT (Internet of Things) out of the gate.
I am of no law major, but i is a surprise to me that the price fixing is used on buyers.
If you think your interpretation of the law is flawless, so be it.
free speech.
I am just raising my eye brows and question whether the law itself is logical of sensible.
It is a fact across history that many laws were in deed against human race and later on abandoned. It does matter what i think or you think. All we have are opinions.
Last time i checked, the ultimate buyer price fixing is called boycott. they price fix seller down to zero.
All seller can do is no sell. poor sellers.
Arrest boycotters.
How much time have you served in prison at this point in your life?
Dwayne Andreas, former head of economic and political power center Archer Daniels Midland, famously told his son during a price-fixing conspiracy in the mid-1990’s, “The competitor is our friend, and the customer is our enemy.” Now, that’s candor, something to appreciate in leadership.
On a smaller, far more local scale, I’ve also heard of estate sales being controlled by the furniture/antique/collectibles dealers. Any readers have experience with that?
AZ dude, I am a law abiding citizen. I just question the law and when they point a gun at my head, i obey. Yes, I am the ultimate sheeple.
My friends keep telling me i need to attend “aggressive driving class” because they want me to get a ticket so that my life is complete.
Your sense of ethics is confused. Businessmen think they can do anything they can get away with in pursuit of profit. Not infrequently, as in this case, they go to far. Does the concept of the law mean anything to you?
There is no such thing as an inherent right to life, liberty, or anything else. Used to be the biggest thug was the boss, it was his right to get anything he wanted. Still true some places.
Civilization means laws, and Some of which provide the weaknwith protections. You might not like some of these, but they define your rights, and the right of others. Not knowing the laws will not keep you out of jail… course, in this case, the perps were well aware they were breaking the law.
Excuse my ignorance but why didn’t the bank or trustee holding the mortgage step in if the bids were too low? Do California foreclosure auctions not allow a ‘reserve’ price? Obviously something is going if a 5000 square foot mansion in Blackhawk only gets bids for a few hundred thousand dollars.
What went through the foreclosure auctions were mostly smaller homes, often in bad shape, that people with relatively modest incomes, or suddenly no incomes, couldn’t handle anymore. Often times, these homes had sat uninhabited for years before banks finally sold them. Sure, occasionally, there might have been a 5-bedroom cream puff among them, but it wasn’t the norm.
Wolf, any cream puffs are snapped up before they hit auction. You can see who is headed to auction, how much is owed, go knock on the door (if not listed) and make an offer. The piranhas knock on the door even if listed. Brokers who are listing agents know when someone is in dire straits and have a pack of investors on speed dial.
I think it can get worse than that. When I was a kid we lived in a very nice house in a nice neighborhood in Hawaii.
From what my older sis (5 years older and better able to observe plus a real friend and confidant to my dad) told me, there was a real estate agent who wanted our house. She flirted with my dad and convinced him to buy a sports car he didn’t need and could not really afford. We had to put the house up for sale and for some reason it didn’t sell, however many Open Houses we held. I believe we got screwed over when it finally sold, or was foreclosed, or whatever happened.
In some of these small insular markets, and Honolulu is/was just a small town where the RE people tend to know each other, I can imagine things like this happening all the time. Some RE shark knows Mrs. Jones is sitting on a lot of equity and is barely hanging on with her SS checks, wouldn’t it be awful if she got an assessment for a new sewer pipe/sidewalk/tree removal? Or, for some reason her lawn’s all brown so she gets notices and threats of fines to fix it (she doesn’t know someone’s sprinkling weed killer on it at night).
Judges in Hawaii are also in on it, they form huis and conspire to make it possible for even relatively wealthy people to not lose their homes. There was a story on the foreclosure radio hour about a female doctor who had something like 5M in RE, lost most of it on technicalities in court and the judges had investments and relationships with the banks pushing the foreclosures. Poor woman had no way to make good even though she had the money and on top of that probably lost a ton of money in court.
*to not lose their homes should read
to lose their homes
I experience something similar at a bankruptcy auction on a 17 acre parcel in Sag Harbor NY in 1992 The attorney in bankruptcy was personal friends with the people they robbed it from me to award to them only to have it overturned in court by a case brought by the attorney for the lien holders of which there were plenty I only overcame them by bringing in two powerful partners one of whom was a RE attorney Lots of insider nonsense going on no doubt about that
This is one of the most thouht provoking discussions I’ve seen in a long time. Thanks!
Feel like this may have impacted my refinancing in the bay area in 2010. Two condos in my complex, exactly the same floor plan, had sold for 500K in the past 6 months. At that valuation I would have no problem with a refi.
However, a similar sized foreclosure in another complex went for 400K which seemed way too low even in a down market, mainly because there was no inventory. Because that 400K condo was slightly more recent, our appraiser gave a value of 420K, despite exact comps selling for way more.
I eventually got the refi done down the road, but it was a complete blocker at the time barring me showing up with a wheelbarrow full of cash.
I had completely forgot about this, but felt like something stunk at the time.
Some Cali bidders came to Colorado. I was bidding for a house to live in (Colorado Springs about 1 1/2 years ago) and they as investors were outbidding me. Market still hot here. Or should I say insane. Cali guys buying up most everything at auction. No rigging as the local investors having trouble finding anything. That’s when I decided to rent until this thing pops.
Boulder, CO Housing Prices Crater 11% YoY
https://www.zillow.com/boulder-co/home-values/
FWIW, and others can do this too I’m sure…
I once opted to pay extra loan points at closing to obtain a lower interest rate, and I passed that additional expense onto the company that was relocating me as part of closing costs covered by my relocation package agreement.
Short sale fraud was way more rampant and egregious, yet the Feds never pursued many cases. This is a case of LE going after the low hanging fruit to get numbers and publicity.