Homeowners at foreclosure auctions have been victims of cartel for years

Homeowners that were forced to sell their homes through foreclosure auctions have been the victim of a cartel for years. The Netherlands Competition Authority (NMa) has therefore decided to impose fines, totaling EUR 6.3 million, on 14 Dutch real-estate traders. According to the fining decisions, these traders kept property prices at foreclosure auctions artificially low in order to make a profit at other, secret auctions (so-called afterauctions). ‘Homeowners that have to sell their homes are entitled to a fair price. However, their sold homes brought in less than expected as a result of these traders’ tactics,’ says Chris Fonteijn, Chairman of the Board of the NMa.

Traders kept outsiders away, or tried to get them involved in the cartel, even relying on intimidation in some cases. They have repeatedly reported of an implicit system using symbols and signals in order to manipulate auctions. As a result thereof, the official auctions produced lower prices. Homes were then re-auctioned among the cartelists at a so-called afterauction. The cartel ‘profit’ (the difference between the price at the official auction and the price at the afterauction) would then be split among its members. Homeowners thus missed out on that profit. Such tactics have been repeated at hundreds of auctions. Traders are very candid about why they set up this cartel, as this trader explains: ‘It’s a win-win situation. We eliminate a potential competitor, and, in return, I get some money.’ Another trader says: ‘Taking part gives you a chance of earning free money.’

The cartel existed between June 2000 and November 2009, and has affected foreclosure auctions across the Netherlands, involving more than 2,000 homes. The 14 traders that have been fined were involved in auctions involving 265 to (in some cases) more than 1,100 homes per trader.

Current investigation and current proceedings
The traders concerned have the opportunity to file objections with the NMa, and appeals with the court against their fining decisions. In October 2011, the NMa sent decisions to 42 other traders, stating the NMa’s suspicions of cartel violations. The investigation into the other traders is still ongoing.

Collaboration with Dutch Tax Administration
In 2005, the NMa already carried out an investigation into foreclosure auctions. That investigation did not produce any concrete evidence for violation of the prohibition of cartels. The NMa reopened the investigation after the Dutch Tax Administration had given relevant information to the NMa. Investigations by the Dutch Tax Administration additionally revealed that some traders had taken some liberties with their tax returns. For example, the returns of 32 real-estate traders were readjusted for more than EUR 10 million, which resulted in EUR 5.2 million in additional tax revenues. The Dutch Tax Administration will be assessing whether the traders in question in the NMa investigation have reported their earnings when they filed their tax returns. This collaboration fits in with the government’s integrated approach to combat abuses in the real-estate industry.

On January 1, 2013, the NMa will merge with the Netherlands Consumer Authority and the Independent Post and Telecommunications Authority of the Netherlands (OPTA), creating a new authority: The Netherlands Authority for Consumers and Markets (ACM). This new authority aims to ensure that markets work in order to protect consumer interests. To this end, the ACM will focus on three main themes: consumer protection, industry-specific regulation, and competition oversight.