Bid Rigging at Trustee Foreclosure Sales

Bid Rigging

In certain situations the courts have equitable discretion to extend statutory redemption periods and void foreclosure sales. Courts have the power to set aside a foreclosure sale or extend the redemption period if there has been “fraud, deceit, or collusion.”(E1) One type of collusion occurs when two or more bidders at a foreclosure sale stifle competition by making an agreement to stop bidding up the price of the property.(E2) This agreement can come in a variety of forms. In Amos v. Aspen Alps 123, LLC, three bidders agreed to form an LLC to purchase the property; thereby stopping the rise in the price of the property. Bid rigging is distinguishable from permissible joint bidding. Joint bidding occurs when two or more people pool their resources to buy a property that they could not have afforded individually.(E3) When bid rigging has occurred the court has discretion to set aside the foreclosure sale and extend the statutory redemption period.(E4)

The Colorado Court of Appeals concluded that bid rigging is per se illegal under both federal anti-trust law, the Sherman Act, and under Colorado state law. Although not controlling, the court relied on federal case law to hold that bid rigging is a per se violation of the Sherman Act because it is a type of price fixing.(E5) Colorado law states that “it is illegal for any person to contract, combine, or conspire with any person to rig any bid, or any aspect of the bidding process, in any way related to the provision of any commodity or service.”(E6) This statute explicitly forbids bid rigging and suggests a broad reading of the instances in which bid rigging applies by including the phrases “any person” and “in any way.”(E7) For example, in Amos the three bidders who formed an LLC had already all bid has high as they could.(E8) However, the court held that this was still bid rigging, not joint bidding, because none of the three knew that the others had reached their limits.(E9)

In Amos the court held that because bid rigging had occurred, the public trustee’s deed to the LLC must be set aside.(E10) The court then remanded to determine if the foreclosure sale should also be voided.(E11)

The statutory redemption period contested in Amos was the owner’s redemption period, which no longer exists.(E12) However, other Colorado precedent has held that the court’s equitable authority to extend redemption periods includes redemption periods for junior lien holders.(E13) There has not yet been a Colorado case that discusses extending the statutory redemption period for junior lien holders on the basis of bid rigging.

Endnotes:
(E1)Johnson v. Smith, 675 P.2d 307, 310 (Colo. 1984)
(E2)2010 WL 27401 (Colo.App. 2010)
(E3)Id. at 10
(E4)Id. at 12
(E5)United States v. Bensinger Co., 430 F.2d 584, 589 (8th Cir. 1970)
(E6)COLO. REV. STAT. § 6-4-106(1)
(E7)Amos, 2010 WL 27401, 9
(E8)Id.
(E9)Id.
(E10)Id. at 12
(E11)Id.
(E12)Id. at 8
(E13)See Generally Johnson, 675 P.2d 307

Jon Goodman is a shareholder with Frascona, Joiner, Goodman and Greenstein, P.C., a Colorado law firm. His practice areas include Real Estate,Brokerage Law, Contracts, Land Use, Leasing, Real Estate Title, Association Law, Business Law, and Finance. Contact Jon Goodman.

Disclaimer — Content is general information only. Information is not provided as advice for a specific matter, nor does its publication create an attorney-client relationship. Laws vary from one state to another. For legal advice on a specific matter, consult an attorney.

JONATHAN A. GOODMAN