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Bid-Rigging at Tax Lien Auctions

Tax lien auctions are commonly used by counties, municipalities, and other local government entities to deal with tax-delinquent properties. When a property owner fails to pay taxes on the property, the political subdivision in which the property is located may attach a lien for the amount of the unpaid taxes. In many states, local governments are authorized to sell such liens, either individually or in a bundle. Tax lien auctions – like all auctions – may be susceptible to anti-competitive activity by bidders.

In 2013, a federal grand jury in New Jersey indicted six investors for their roles in a conspiracy to rig bids at auctions conducted by New Jersey municipalities for the sale of tax liens from 1998 to 2009 (U.S. v. Wolfson, et al., Case No. 2:13-cr-00748). According to the indictment, the conspirators would arrange ahead of time which of them would bid or not bid on certain lots, or would otherwise structure their bids in such a way as to predetermine the outcome in favor of one of the conspirators. At times they allegedly would flip a coin or draw numbers out of a hat or a deck of cards to determine who would purchase certain tax liens.

By eliminating competition among themselves, the bidders kept the interest rates on the liens they purchased artificially high. (At tax lien auctions, investors bid on the interest rates property owners will have to pay. The bidding starts at an 18 percent interest rate, but with competition, it can be driven down as low as 0 percent.) As a result of the conspiracy, property owners and those struggling to save their homes from foreclosure were made to pay higher interest rates on their tax debts, according to the U.S. Department of Justice.
To date, at least three businesses and 13 individuals have either pleaded guilty or been convicted as a part of the federal investigation of this scheme and others like it.
If you suspect that your public entity’s auction may have been impacted by this type of collusion, report it to the Ohio Attorney General’s Antitrust Section. By helping catch unscrupulous bidders who take the risk of using bid-rigging schemes to game the system, you can help ensure that their gambles don’t pay off.