FBI Probes Bid Rigging

by | Jan 21, 2011 | Bidding Wars, Buying at Trustee Sale, Scams, Thinking of Buying? | 3 comments

Hat tips to Jakob and Gene for sending this along from sfgate.com:

Investigators look into whether there is collusion among real estate speculators involved in the courthouse sales.

Foreclosure auctions take place every weekday on the steps of courthouses throughout California. Now the FBI is investigating whether some real estate speculators are illegally rigging bids for these sales.

“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,” said bureau spokeswoman Julie Sohn.

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.

Such bid-rigging violates the federal Sherman Antitrust Act and can carry a maximum penalty of 10 years in prison and a $1 million fine.

That maximum can be increased to twice the perpetrator’s gain or twice the victim’s loss.

“There have always been rumors of collusion at the courthouse steps,” said Sean O’Toole of ForeclosureRadar.com, a Discovery Bay company that provides detailed information on properties sold at the auctions. At a typical auction, many investors clutch clipboards with printouts from his website.

“If you have a small crowd of guys that talk to each other every day, it’s natural for them to say, ‘Why are we bidding each other up? Let’s just buy this and work it out afterward.’ ” O’Toole said. But when he speaks to real estate clubs and others, O’Toole said, “I am very clear. I say: ‘This is illegal. Don’t do it.’ “

Most properties revert to lenders at courthouse-step auctions, which are the final step in California’s foreclosure process, but about 20 percent get sold to outside investors.

Rules of the game

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.

A real estate agent who attended some San Francisco auctions in hopes of buying investment property described what he witnessed.

“If you start to bid, there are about five guys who work together and who box you in,” said the man, who asked not to be named for fear of retribution. “One guy came up to bid who clearly was not part of that crew. The guys were bidding. At some point, (their ringleader) turned to (the outsider) and said, ‘You must really like this property. It must be really important to you.’ He had a piece of paper in his hand; he showed it to the guy.  The guy nodded OK and then disappeared into the building.”

The man said he was positive that the outsider was being paid off not to bid, although he did not witness money changing hands.

At Alameda County’s auction Wednesday, most investors declined to discuss the issue, but some said they welcomed the FBI’s interest.

“This has been going on for many years,” said one man who declined to give his name. “It’s a closed group that doesn’t always allow the properties to go up to their true value.”

Thin margins

O’Toole and others said the margins at the auctions are pretty thin.

In general, he said, “the opening bid is only 20 percent below market, and the average sale is only bid up 12 percent. It’s hard to make a living in this business – by the time you pay repairs and sales costs, you’re looking at about a 5 percent net return.”

In a case that resembles the current probe’s focus, in April a Stockton real estate agent pleaded guilty to bid rigging.

Anthony B. Ghio admitted “that he conspired 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 a news release from the U.S. Department of Justice. “The primary purpose of the conspiracy was to suppress and restrain competition and obtain selected real estate … at non-competitive prices.”

The release said that after a “designated bidder” bought a piece of property at the public sale, the co-conspirators would hold a second private auction to determine who in their group ended up with the property. The difference between the two auction prices “was the group’s illicit profit, and it was divided among the conspirators in payoffs,” the release said.

The FBI encourages anyone with knowledge of anti-competitive practices at foreclosure auctions to call its tip line at (415) 553-7400.

Drip Confirmation

by | Jan 21, 2011 | Market Conditions, REOs Coming to Market, Thinking of Buying? | 10 comments

In Bank of America’s 4th quarter report today (seen at Calculated Risk), they state their preference and commitment to the drip system:

Foreclosures

  • Resumed foreclosure sales in most non-judicial states in early December, starting with vacant and non-owner occupied properties; expect to resume sales in remaining states in 1Q11.
  • Maintaining a deliberate and phased approach.
  • Remain committed to ensure no property is taken to foreclosure improperly.
  • Review of our foreclosure process shows the basis for our decisions has been accurate.
  • Process areas identified for improvement.

Delinquency Statistics for Completed Foreclosure Sales

  • 78% of borrowers had not made a mortgage payment for more than one year.
  • Average of 585 days in delinquent status (approximately 19 months).
  • 50% of properties were vacant (excludes loans for which occupancy was unknown).
  • 54% of borrowers were unemployed or had their income reduced.

MERS Answer

by | Jan 20, 2011 | Bailout, MERS, Psycho-babble

Here’s my 2-part MERS settlement. 1. Have the banks fund Sheila’s “foreclosure claims commission” to dole out settlements to those who were harmed, and 2. Have the servicers pay all the back recording fees owed (or settlement).  MERS is then allowed to continue operations and be required to record all transfers/pay the fees.

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From HW:

If local governments succeed in the fight against how banks have recorded the transfer of mortgage notes through the Mortgage Electronic Registration Systems, home loans could become as expensive as credit cards, K&L Gates Partner Laurence Platt said Wednesday.

At the last panel of the Mortgage Bankers Association summit on the future of mortgage servicing, Platt and Adam Levitin, an associate professor at Georgetown University Law Center, discussed the validity of MERS. The company was created by major lenders to become the single title holder of a mortgage as the owners of the note made transfers back and forth through securitization.

This, Platt said, was a solution to “antiquated filing systems” at the local level. In Chicago’s Cook County, for example, it can take up to a year for a lender to receive a recorded mortgage back at the time of foreclosure, prepayments and other actions.

But local jurisdictions such as the states of California and Virginia are fighting to void foreclosures completed where the lender lays claim to the enforceability of the credit – meaning if the lender can use MERS to prove it has the right to foreclose – on two basis, Platt said.

One, MERS replaces the fees lenders used to pay to local governments for recording these notes, and these governments are claiming the banks still have to pay fees for the transfers. Second, Platt said, they are trying to score political points, which will only end up hurting borrowers in the future.

“My biggest concern is that local jurisdictions are enacting laws that change the centuries old law on recorded assignments in their locales, and that would void all mortgages in their jurisdiction,” Platt said. “But Virginia didn’t require assignments in the past. So, if that law passes, you will not be able to foreclose in the commonwealth in Virginia. It’s turning real property law on its head.”

But Levitin pointed out the inaccuracies and full-out holes in the MERS system. In cases he looked up, often the investor or the servicer on the MERS system did not match what was on the note.

“MERS ceases to track transfers once the loan is moved into another system,” Levitin explained.

Platt admitted there were issues with the system, but he warned that scoring short-term political points could be the end of affordable housing.

“They are making secured credit unenforceable,” Platt said. “If you think you’re going to get 4% mortgages on unsecured loans, you’re wrong. You’re going to get credit card rates. MERS was designed to make it easy to transfer assignments in modern economics.”

Squatters Facing Three Years

by | Jan 20, 2011 | Scams | 2 comments

Hat tip to AL for sending this along from the ocregister.com:

NEWPORT BEACH – A husband and wife were arrested Thursday morning and face charges of illegally living in homes as squatters.

Chris Wayne Duncan, 42, and Robin Ann Duncan, 36, both of Newport Beach, were each charged with one felony count of conspiracy to commit second-degree burglary, second-degree burglary and unauthorized entry of a dwelling, according to the Orange County District Attorney’s Office.

Chris Duncan is accused of finding properties that were in foreclosure and vacant. In September 2010, prosecutors allege, the Duncans drafted a fraudulent lease of 10 Hidden Pass – a foreclosed and vacant property in Newport Coast – and then broke in and illegally moved in.

According to the District Attorney’s Office, the couple claimed to be renters of the property and had utilities turned on in their names to give the appearance of legitimate tenancy.

In October, when an appraiser went to the property as part of the process of short sale, the Duncans changed the locks and kept the appraiser from entering the home, prosecutors said. The couple is accused of telling the appraiser that they were legal renters and that the owner should contact the Duncans directly.

According to the District Attorney’s Office, the owner then contacted the Newport Beach Police Department, which investigated the claim and arrested the Duncans.

The Duncans are each being held in lieu of $25,000 bail. An arraignment date is pending.

If convicted, the couple faces up to three years in state prison.

More MERS/Robo Settlement Talk

by | Jan 19, 2011 | Loan Mods, MERS, Psycho-babble | 15 comments

She doesn’t say it specifically, but this should be the first step in resolving the MERS/robo-signing debacle with well-rounded settlements for all – from MND:

Federal Deposit Insurance Corporation (FDIC) Chairman Sheila C. Bair called today for a “foreclosure claims commission” to address complaints from homeowners who have been harmed by flaws in the foreclosure process.  This was one of several improvements suggested by Bair, an outspoken critic of the servicing industry, at a “summit” on Mortgage Servicing for the 21st Century sponsored by the Mortgage Bankers Association (MBA).

Bair said that throughout the mortgage crisis “the most persistent adversary has been inertia in the servicing and foreclosure practices applied to problem loans,” and that prompt action to modify unaffordable subprime loans in 2007 could have helped to limit the crisis in its early stages.   Still, 18 months into an economic recovery and with hundreds of thousands of mortgage modifications completed, “mortgage markets remain deeply mired in a cycle of credit distress, securitization markets remain frozen, and now chaos in mortgage servicing and foreclosure is introducing a dangerous new uncertainty into this fragile market.”

Bair spoke, as she has several times in recent months, of misaligned incentives in the servicing business model which she said drove the origination of trillions of dollars of unaffordable subprime and Alt-A mortgages that triggered the crisis.  Now, she said, the fixed fee structure based on volume does not provide sufficient incentives to effective manage large volume of problem loans during a period of crisis.  “Mortgage servicers have remained behind the curve as the problem has evolved to include underwater mortgages and, now, foreclosure practices that sow confusion and fear on the part of homeowners and fail to fully conform to state and local legal requirements.”

This compensation structure drove automation, cost cutting, and consolidation to the point where the market share of the top five servicers has gone from 32 percent to almost 60 percent since 2000.  “When mortgage defaults began to mount in 2007 and 2008, third-party servicers were left without the expertise, the contractual flexibility, the financial incentive, or the resources they needed to engage in effective loss-mitigation programs.”

Responding to the crisis, Bair said, requires all parties involved to recognize that loss mitigation is not just socially desirable, it is wholly consistent with safe and sound banking and has macroeconomic consequences.  “The bottom line is that we need more modifications and fewer foreclosures. When foreclosure is unavoidable, we need it to be done with all fairness to the borrower and in accordance with the law. Only by committing to these principles can we begin to move past the foreclosure crisis and rebuild confidence in our housing and mortgage markets.

The foreclosure claims commission envisioned by Bair would follow the model used to settle claims arising out of the BP oil spill and the events of 9/11.  It would be set up and funded by servicers to address claims submitted by homeowners who have wrongly suffered foreclosure through servicing errors.  Bair said that many in the servicing industry will resist such a settlement because of the immediate financial cost, “but every time servicers have delayed needed changes to minimize their short-term costs, they have seen a deepening of the crisis that has cost them – and the rest of us – even more.”

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