How deft bid-riggers harmed ex-owners of foreclosed homes
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Greg Casorso, bidder for Community Fund LLC, stands at the Alameda County Courthouse during a trustee sale on Monday, April 28, 2014 in Oakland, Calif.
People gather at the Alameda County courthouse for the daily.
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It was noon on a fall day in Oakland. Heat radiated off the white concrete steps and picnic tables out front of the Alameda County Courthouse where a band of would-be home-buyers gathered.
Robert Kramer. a regular at the daily foreclosure auctions, joined the crowd, sporting a safari hat and an unkempt white beard. He greeted many in the crowd by name, ribbing them with playful banter, as he settled himself at one of the concrete tables. He paused for a moment, taking in the scene.
"Kramer, what are you looking around for?" yelled a man from across the steps, laughing. "The FBI?"
"They already found me," he deadpanned.
In 2011, Kramer, 66, was caught in a nationwide FBI and Department of Justice investigation into bid-rigging at foreclosure auctions. He pleaded guilty to colluding with other bidders to suppress the sale prices of the foreclosed houses that came to market during the mortgage crisis. They then held private illegal secondary auctions where they resold the properties and split the profits. Across the state, similar schemes played out. Those who have pleaded guilty face up to 10 years in prison and fines of $1 million for bid-rigging.
An investigation by the UC Berkeley Investigative Reporting Program, relying on thousands of property records, court documents and dozens of interviews with bidders, provides a behind-the-scenes look at the murky world of foreclosure auctions, where intimidation was commonplace and millions in cashier's checks were exchanged daily.
A windfall amid recession
For some local real estate investors, the collapse of the housing market wasn't a tragedy; it was one of the greatest windfalls in real estate history. Between 2007 and 2012, banks foreclosed on nearly 150,000 homes in the Bay Area, according to Property Radar, a real estate tracking company.
At least 25,000 of those houses were purchased at auctions across the region's nine counties, according to an analysis of property records, attracting bidders with plenty of cash to scoop up deals by the score. More than $7 billion in foreclosed property sold over the six-year span, records show. The FBI sweep in 2011 revealed that some of these purchases were made illegally.
To date, 46 Bay Area real estate investors have pleaded guilty to rigging foreclosure auctions in Alameda, Contra Costa, San Francisco and San Mateo counties. The FBI said those investors spent more than $200 million on the properties and collectively gained as much as $34 million from private auctions held exclusively for members within their circle. The number of properties they purchased is likely much greater, but it's unknown, because many were purchased in the names of clients.
Greg Casorso. a frequent bidder at the courthouse steps in Alameda County, described investors who perfected a system of buying houses at public auction. He said he saw newcomers discouraged from bidding through a variety of tactics, including the presence of "thugs."
Casorso also acknowledged buying properties at a minimum asking price and then holding private auctions called rounds, where bidders flipped the properties and kept the profits from the banks - but he said he believed he was not doing anything illegal by doing so.
He described a lawless environment.
"Down here, there's hundreds of millions of dollars being transacted and no security, no management, no nothing," Casorso said.
According to property records provided by CoreLogic, the average price of homes purchased by the 46 investors who have pleaded guilty was roughly $225,000, compared with an average of more than $275,000 for all houses purchased at auction across the Bay Area between 2007 and 2011.
David J. Johnson. special agent in charge of the FBI San Francisco field office, said any agreement made by individuals to limit competition at public auctions is a form of collusion, a violation of federal antitrust laws.
"Bid-rigging impacts not only the essence of a free market but also the legitimacy of home buying, which is one of the pillars of the American dream," he said.
The FBI confirmed that the investigation is continuing but declined to comment further.
All of the individuals charged in the Bay Area have pleaded guilty and are awaiting sentencing. Among them is Kramer, who is able to continue to buy homes at foreclosure auctions through his Oakland real estate investment company, Robert Kramer & Associates, in the meantime. His sentencing hearing is set for Oct. 29.
San Joaquin County scheme
The FBI investigation, while focused on the Bay Area, has reached across California. Many of the records in the 46 guilty-plea cases remain sealed because of the ongoing investigation, Department of Justice officials said. But in a similar scheme, two real estate investors from San Joaquin County went on trial this year, and a jury found them guilty of bid-rigging. Their counsel said they plan to appeal the decision.
The investors, working with other bidders, called themselves "the Group." Their approach was to buy homes for as little as possible and then flip them among each other at second private sales, called rounds or round robins. The Department of Justice accused them of participating in more than 300 illegal round robins.
In one case, a home on Stefano Drive in Stockton sold for a penny over the $142,000 opening bid price. Six bidders later took part in a round robin, where the property was resold for $166,300. The $24,300 difference was divided among the Group.
Federal authorities compared the crime to a heist.
"When four men go into a bank with masks over their faces and duffel bags, and demand cash
from the teller, it's not complicated; it's a bank robbery. And so is this," U.S. prosecutor May Lee Heye told the jury in Sacramento during a March trial for two of the buyers. "This bank robbery required paperwork. It required keeping notes of the take. But make no mistake about it, it was a bank robbery. It was stealing."
The foreclosed homeowners are the ultimate victims of the bid-rigging, federal investigators said. Any money earned at auction beyond the debt owed on the house is supposed to be returned to the former owner. By bidding up the properties in a private auction, the participants kept that money for themselves.
But Casorso saw it differently. In the absence of clear laws, he said, it was up to the bidders to make their own rules at the auctions.
"Here you are handling hundreds of million dollars every day, and there is not a single announcement about what constitutes legal or illegal behavior," he said.
Described as good business
Though he has not been charged, Casorso readily admits to participating in the secondary auctions, which he said are just good business deals.
Casorso was a bidder at foreclosure auctions for Community Fund LLC in San Leandro, the largest purchaser of homes at foreclosure auctions in the Bay Area from 2007 through 2012, according to property records.
Michael Marr. the head of Community Fund, declined to respond to repeated requests for comment, and it is unclear whether Casorso still works for Community Fund.
Casorso said he started buying homes in 2009, when dozens of newcomers showed up on the courthouse steps in what he described as "a shark feeding frenzy."
For years, foreclosure auctions were a small, niche market, but the mortgage-lending crisis changed everything. In 2007, there were about 13,400 foreclosures in the Bay Area. The next year the numbers rose 180 percent to more than 37,500 foreclosures, according to Property Radar.
As banks felt the burden of holding so many homes, they held a fire sale and began asking even less than what was owed on the properties. In 2009, the average asking price dropped 57 percent below what was owed on the homes, according to Property Radar. These heavily discounted homes flooded the auctions.
"You had this uptick in supply," said Paul Staley, vice president of the Self-Help Community Development Corp. in Oakland. "But you also had a corresponding uptick in the amount of money at the courthouse steps. So you created this opportunity for a whole lot of more shenanigans."
Casorso spoke of investors physically closing off the circle to potential buyers and bidding up other investors before suddenly pulling out, a practice he called "pump and dump." It was all just part of the gamesmanship on the courthouse steps, he said.
Auctioneers, or criers, as they are often called, are supposed to finalize the sales immediately after the close of bidding, according to California civil code. But Casorso said he and other bidders would pay some auctioneers to hold off completing the purchases so properties could be vetted. Amid the confusion of the foreclosure crisis, Casorso said, sometimes the crier did not even offer the correct address.
The secondary rounds often occurred on the courthouse steps. Casorso described about a dozen bidders circling up. Bidding continued until someone emerged a winner, who later handed the auctioneer a new cashier's check for the same dollar amount as the initial sale. The winning bidder then paid the difference in price to the pot, which was split among the participants.
"Everyone made money and everyone came back the next day and did it all over again," Casorso said. "The money was very circular in the fact that it is supporting the auction process, day after day after day."
On the morning of Jan. 11, 2011, Casorso said, he was returning home from a golf driving range when two FBI agents approached him on the sidewalk outside his former home in Oakland.
They were fanning out to the homes and offices of key players across the area in an operation called Crier Blind.
Casorso said the agents told him they knew all about illegal activity at the courthouse steps, said it was the "biggest open secret there is," and that it was in his best interest to talk.
"I was stunned," Casorso said, "I mean, you don't have anything better to do?"
He said he rejected their offer, and more than three years later, he still is waiting to be charged. He denies that he broke the law. The secondary auctions, if anything, he said, stimulated bidding by creating a less risky environment for investors.
FBI officials declined to confirm whether Casorso, along with his employer, Community Fund, is under investigation.
Nevertheless, Casorso said the FBI investigation is "on everyone's mind." The regulars, he said, are keeping their heads down while authorities continue to poke around. They are no longer holding secondary rounds, Casorso said. Auctioneers are more diligent about recording sales immediately after the bidding ends.
The banks, however, have not gotten any better at cleaning up the process, he said. Buying foreclosed homes remains a perilous business with no more oversight than when he began. He said he expects the rounds to return once the FBI investigation blows over, "because it's just too dangerous to be buying these properties this way."
Meantime, he said, he has more pressing worries. As the economy has improved, the flood of homes at the auctions has slowed to a trickle.
"We're more concerned right now with the sluggishness, the fact that there are hardly any sales," he said. "That's more troubling."
This story was a project led by Matt Isaacs of the Investigative Reporting Program at UC Berkeley. It was made possible by a grant from the Knight Foundation.Source: m.sfgate.com