Antonio Flores’ Blog

Example of Real Auction in Spain

Auction rigging, commonly known as bid rigging, is a form of collusion between real estate speculators whereby they conspire to illegally rig the bidding process. This fraud at public real estate foreclosure is a criminal offence and in some countries (U.S), each bid-rigging carried a maximum penalty of 10 years in prison a $1 million fine.

According to a U.S. Department of Justice note, “over the past three fiscal years, the Justice Department has filed nearly 10,000 financial fraud cases against nearly 15,000 defendants including more than 2,900 mortgage fraud defendants.”

Spain’s Courts have been equally responsive when dealing with this problem: we can recall one famous bid-rigging fraud case in the Valencia Courts where 42 individuals (on appeal 27 were acquitted) received lengthy sentences, two of which got 10 years each. The only difference with the US is the last high profile case took place in… 1995. And since, very little Government activity to curb this plague.

This is not the only unusual thing: in this country, possible to witness firsthand how these fraudsters operate. All you have to do is attend a busy auction dealing with a coveted property.

Let’s take the Marbella Courts as an example where a selected group of “subasteros” (a mix between a speculator, opportunist, outright fraudster and a liar) operate with worrying impunity; these guys are familiar faces, “dummy bidders” that turn up day in day out to boycott auction procedures by chasing away legit bidders –occasionally with threats-, demanding money from serious contenders in exchange for not participating (as well as offering them money to refrain from doing so), or escalating the bids to force out any newcomer.

The boss of this Mafiosi syndicate used to be a bold (bald too) overweight individual (names withheld); he had experience, money and contacts in Courts, and led the rest in their nefarious activities. It appears he has now taken a step back, perhaps his prominence was beginning to mirror his physique and got that timely feeling that it was just the right moment to retire. The rest unfortunately remain, as so do many other hundreds operating throughout Spanish Courts.

Sadly, lawmakers have not yet noted the flaws of the current system nor the simplest solution for this instance of corruption: first-price sealed-bid auctions in which bidders place their bid in a sealed envelope and simultaneously hand them to the auctioneer, the Court in this instance.

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You may have heard of them, but until you actively participate in one, you don’t quite get to grasp the extent of the fraudulent machinations going on at Spanish property auctions . It happened last week, when we were approached by a client who wanted to bid for a front line Puerto Banus property at an auction being held at the Marbella Courts.

The client had previously lodged 30% of the auction price with the bank, and instructed us to bid for the property with a power of attorney, which we capped at €2,050,000. The day before the auction was interesting, as we had found out that there was a demolition order for a section of the property built without planning permission. Notwithstanding this threat, our client decided to proceed, and so we turned up at the Courts with our pink slip proving the payment of the deposit to the BBVA Court bank account and our power of attorney.

It was surprising to see some familiar faces: a couple of lawyers, a few real estate agents and two or three professional property auction dealers, known in Spain as subasteros, who are all the following in one: speculator, opportunist, outright fraudster and liar. One of these subasteros, who attempt to control the outcome of the auction by either offering you money not to bid or, more to the point, asking for it in exchange for them not bid, approached us at the start of the process like dogs sniffing out hashish at the Tangiers border, and demanded we paid €150,000 to stop the bid at €1,400,000 so that the price would not escalate. We refused on obvious grounds, and proceeded to commence the bid process.

In total we counted 6 legitimate bidders, or rather 6 bidders who had the pink slip, as we soon realized that they were mere speculators and were not prepared to even pay what the bank was owed (€1,200,000). When the bank kicked off the bid at the latter price, we soon dropped the only other bidder who seemed genuinely interested in buying the property, and began a drawn out bidding war with an overweight bold subastero (am told he is the boss of the mafiosi syndicate) who was appointed by a lawyer who in turn had been instructed by British clients. The gentleman, known to have 35 years of experience in the art of ripping off debtors and creditors alike, was determined to bag the property, and took the bid to an unaffordable (to his clients) €1,715,000, well below our limit (unknown to them) of €2,050,000.

As a summary, if you are going to a Spanish auction watch out for the following:

1. Pooling: it happens when a group of bidders pre-agree the result of the auction to either drive legitimate bidders away or cap the bidding price with a view to resell later at a higher price. Occasionally, they can resort to extortion and other more subtle ways to convey the message.
2. Dummy bidders: someone who is hidden in the crowd for the sole purpose of making false bids in an effort to artificially increase the price of the property. They work for the debtor.
3. Subasteros: Professional fraudsters who make money by generally asking for it before the auction so as to not bid. In the auction being described. we were asked to pay €150K to save €200K, which, considering the nature of the business, could have made sense.
4. Innuendo, gossip and lies: it is a typical off-putting mechanism, and it normally refers to the value, quality or hidden defects of the property. In this case, I was told by the one lawyer who was bidding through his “subastero” that the garden was being land-grabbed by the Coastal Department (via compulsory purchase) but he obviously did not think this to be a problem!
5. Dirty looks, sarcastic smiles or congratulatory hand-shakes: Each one means something, generally never good. In our case, we received 2 phone calls after the event offering us to not legally challenge the auction, in exchange for €150K Euros, which we kindly declined.

Have a look at the excerpt of the auction below, as it was one where almost every single sharp practice in the book was displayed, unsuccessfully, by professional bidders. Unless, of course, the insistent bidder was in dummy format and was working for the debtor to raise the sale price as much as possible!

• Example Spanish Property Auction Excerpt  (PDF 923 Kb)

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