The Sherman Antitrust Act of 1890 is a United States antitrust law meant to protect free and fair competition. Although it’s an antique law, it’s still alive and well today. If you’re an investor bidding on tax liens or deeds at a government auction, this law helps to safeguard you from bidders who attempt illegal price-fixing schemes. On the other hand, if you are unaware of this federal law – or other similar antitrust laws – you could inadvertently find yourself red-flagged by the FBI. Read on, to learn why antitrust laws are a good thing – and for tips on how to ensure that you stay on the right side of them.
The Sherman Antitrust Act
Most of the laws that apply to bidding at tax sales fall under the Sherman Antitrust Act, so it’s a good idea for tax investors to become more familiar with it and what it allows and prohibits. You can look up information on federal government websites like that of the Federal Trade Commission. Or you may take a class or training workshop, like those offered by the National Tax Lien Association. As usual with tax investing, each local jurisdiction also has its own rules. Before participating in an auction, be sure to check with the county or other jurisdiction where you are bidding to understand their rules and regulations. That’s important to do for every different auction jurisdiction, because the tax sale rules often vary widely from one county to another. You want to be sure you’re fully compliant, and do not innocently or inadvertently break any of the applicable rules.
An Expert Tip for Ensuring Legal Compliance
Many experts have a very simple strategy they follow in order to not raise any red flags or suspicions. They basically keep to themselves when they attend auctions, and are discreet about what they intend to bid on and how much they plan to bid. They do that to avoid any appearance of impropriety. Here’s an example to help illustrate why. If two bidders show up on auction day and decide to share a cup of coffee and get to know each other, they might talk about what they have in common – namely, an interest in tax investing. That could naturally lead to a conversation about what they plan to buy, and what they think it’s worth – and even their hopes that the bidding competition won’t push the price too high. If they nod in agreement, are they secretly signaling that they won’t bid against each other? Probably not, but to a curious onlooker it could appear that way. Always err on the side of caution and discretion, experts recommend. Keep to yourself instead of socializing, so nobody has any reason to suspect any such thing because it is just not worth the risk.
Why it Matters
The reason there could be risk is that the FBI in recent years has really become proactive in weeding out the bad apples in the tax investment industry. That’s good, because they are helping to ensure a level playing field. They have even gone so far as to assign undercover operatives to monitor auctions and look for suspicious activity. What they are on the lookout for are bidders who conspire by saying “If you don't bid on that, then I won't bid on yours, so we can both win auctions at a cheap price.” Or they may agree to bid up the price at an auction, in order to outbid and eliminate other competitors. Either way, it’s unfair business practice – and perhaps more importantly, it’s a form of collusion or price fixing that is against the law.
The Bottom Line
The more that every investor goes the extra mile to demonstrate that they are totally committed to playing by the rules, the better it is for the whole investment community and its reputation. Get to know the rules of the game, follow them, and you’ll never wind up in hot water with the authorities. You’ll also reap the benefits of knowing that when you bid, you are in an environment that is fair and equitable for everyone.
