Antitrust Division Gets Tax Lien Bid Rigging Pleas

August 25, 2011

To say that times are tough would be an understatement - and to say that many owners of real estate are struggling to keep up with their mortgage payments and assessed taxes would simply be restating the obvious.

Tax Lien Public Auctions

When owners of real estate fail to pay taxes on their property (e.g., real estate, water, and sewer), the local taxing authority often attaches a lien for the unpaid balance.  Typically, following a statutorily mandated waiting period, the lien may be sold at public auction.

You might not realize it but there is actually a cottage industry of investors seeking to purchase tax liens.  Some call these buyers predatory vultures (and worse), but others see them as the potential saviors of neighborhoods devastated by foreclosures.  Whatever your view, many cities and counties have come to view these investors as a way to recoup potentially lost tax revenue.

Generally, investors seeking to purchase tax liens are invited to bid at a public auction, with opening bids starting at a fixed interest rate.  The expectation is that a competitive bidding process would move the rate lower.  At some point, the winning bidder acquires a stream of income from the lien, or, after a period of time set forth in a statute, any unpaid liens entitle the purchaser to initiate foreclosure proceedings.

As with so many concepts, the benefits of a public auction with honest, competitive bidding is a sensible idea.  The more the merrier - or so in theory. Unfortunatley, great expectations often come with a whole host of characters and conspiracies designed to subvert the public good for private profit.  In the case of public tax lien auctions, illegal bid-rigging schemes are on the rise, and that means that property owners likely pay higher interest on their tax debts because the bidding occurred without open and honest competition.

Case In Point

Federal prosecutors allege that from at least 2003 through approximately February 2009,

  • Isadore H. May of Margate, N.J.;
  • Richard J. Pisciotta Jr. of Long Beach Township, N.J.; and
  • William A. Collins of Medford, N.J. 

entered into and engaged in a combination and conspiracy to suppress and eliminate competition by submitting non-competitive and collusive bids at certain public auctions within New Jersey for tax liens conducted by municipalities (of which there are some 566 cities, townships, and boroughs). Sharis A. Pozen, Acting Assistant Attorney General in charge of the Department of Justice's Antitrust Division, believes that the "collusion taking place at these auctions is artificially raising the interest rates that financially distressed home and property owners must pay, and is lining the pockets of the colluding investors."

On August 24, 2011, May, Pisciotta, and Collins pleaded guilty in federal court in Newark, NJ. to a one-count Sherman Act criminal Information that charged a conspiracy to rig bids. Each violation of the Sherman Act carries a maximum penalty of 10 years in prison and a $1 million fine for individuals. The maximum fine may be increased to twice the gain derived from the crime or twice the loss suffered by the victim if either amount is greater than the $1 million statutory maximum.

SIDE BAR: To see a copy of the Information and attendant Plea Agreement in these three cases, see the example of the:

Pisciotta Information

Pisciotta Plea Agreement

If you have information about bid rigging or fraud related to tax lien auctions, you should

Bill Singer's Comment

At some point, we really need to drag these public auctions into the 21st Century (or at least the 20th).  In too many cases, public auctions are still conducted on courthouse steps - at some inconvenient time and at an inconvenient location.  All of which invites collusion and corruption among a few influential banks, other financial interests, and individuals who are always looking to find an illegitimate way around the process.

Given the growing influence of the Internet and the exponential growth of online transactions, you truly have to wonder why more so-called public auctions are not conducted online.  My suspicion is that corrupt legislators are bribed - oh, sorry, let me use the more polite "lobbied" - to maintain the quaint status quo.  As a result of the ponderous public auction process, many wannabe bidders are unable to participate. 

Similarly, if it's a crowd of the same dozen or so bidders, well, you know, it's all sort of a nice coffee klatch. Joe gets to know Marty. Harriet smiles at Jack from the Bank. When the bidding starts, a friendly eyebrow gets raised or an ear gets pulled.  Hey, Shirley has the kid to send to college this year, let's not compete with her on this property.

Consequently, what was designed to be an open, competitive public auction has devolved into something quite the opposite.  There's an in-crowd that's antagonistic to outsiders and polices things to keep the sweet deal for themselves.  Sure, that inner circle makes a nice buck but it's to the detriment of the municipalities and the property owners.

Like I said, there's got to be a better way.  On the other hand, if you can just manage to slip a couple of bucks into a council member's pocket or into the clerk's hand . . .

Also see:

Real Estate Auction Bid-Rigging Rings Busted (Street Sweeper, February 9, 2011)

Real Estate Bid Rigging Defendants Plead Guilty in Federal Case (Street Sweeper, July 5, 2011)