Seizures of Real Estate Stepped Up in War on Drugs

In its war against drugs, the government has expanded its battlefield to a 4,000-tree macadamia nut plantation in Hawaii, an island off the coast of Florida and an $850,000 house next door to rock star Madonna’s in Malibu.

These are just a few of the real properties taken by the government in the past few weeks under its National Asset Seizure and Forfeiture Program, and states--notably California--are also making such procurements easier.

“Laws are allowing authorities to seize more since there is more drug trafficking,” said John Russellof the U.S. Justice Department. “There is a more aggressive program now to seize anything that is a conveyance to a drug deal.”

That means cars, planes, boats--and even real estate, though a recently completed nationwide survey of 1,000 real estate brokers taken by the Insider, a New York newsletter, suggests that “the purchase of real estate with illicit funds--such as from drug sales--is an increasing problem for the real estate industry.”

This makes sense to Jim Propotnick, chief deputy of the U.S. Marshal’s office in Honolulu, where there are what he terms “home-grown types,” who grow marijuana on Hawaiian properties, and investors from the mainland, who buy ritzy condos, golf courses and land--sometimes for development--in the islands with money made in drugs. (Actress Bette Midler bought a half-finished house in Kauai on land that had been seized by the government.)

“Drug dealers have to spend their money somewhere,” Propotnick said. “They don’t hide it in a mattress. So they keep trying to hide it behind a title (to property), but we find it.”

If the government finds narcotics on a property or if the property is purchased with drug money, the property can be seized through a civil procedure.

“Seizures have tripled since fiscal ‘86,” Stephen Boyle of the U.S. Marshal’s office in Washington, noted, “because of the seizure authority enacted by Congress in late ’84. It took most of a year to gear up and learn how it worked, but as we get better at it, we’re able to make more seizures.”

At the end of fiscal 1988, which ended Sept. 30, 16,150 properties, worth $704 million, had been seized, in contrast with 9,129 properties, worth $480.1 million, for fiscal 1987. Statistics for 1988 are still being compiled, but in 1987, 41% of the seizures were real estate, 41% were cash, 9% were boats, cars or planes, and 9% were jewelry and gold.

There has been no measurable benefit yet in curbing drug trafficking, Boyle admits, but he views seizure as “an extremely useful tool because in the past many criminals would spend time in prison if they could come out rich.” Seizure increasingly will be a deterrent, he figures, “when the criminals find out that they lose time and everything else with it.”

The government tries to avoid seizing liabilities, he stressed, “so part of our pre-seizure planning is a firm attempt to determine, without tipping off the bad guy, that the property is an asset.”

Once seized, a property is maintained by the U.S. Marshal’s office, including making mortgage payments and collecting rents. “We contract with individuals having skills in whatever property management field is needed,” Boyle explained.

If a judge determines, from a claimant’s reply to a seizure, that the government was wrong, the property will be returned to the owner. Otherwise, the property is eventually forfeited to the government and sold.

“And we make sure we don’t sell it back to a drug dealer,” Propotnick emphasized.

How? Usually, it’s done through realtors, though it can be sold at auction. “Normally, we auction art, cars, planes, jewelry, everything but real property,” Propotnick said.

Boyle explained: “The law requires us to dispose of property by the most commercially feasible means, so we use professionals to market it rather than posting a bulletin on a wall.”

Chief Deputy Robert Dighera of the U.S. Marshal’s office in San Diego, which he says is considered “tops in the nation in terms of (forfeiture) volume,” chooses a realtor from three to five in the property’s geographic area who are asked to submit marketing proposals.

“We don’t have a rotating list (of potential listing brokers),” he said, “though we have a vendor list, because not everybody can sell, say, an avocado ranch.”

He also tries “to spread the wealth,” as he put it, giving business to small as well as large realty firms.

All would be required, by state law, to disclose to prospective buyers that the property was involved in a drug forfeiture case, said Beverly Hills attorney/real estate broker Paula Reddish.

If a sale is in progress, the broker and buyer will find out, through the title report, if the government put a lien on the property, she added. If a property is in escrow when the government seizes it, there probably will be a delay, however, in closing, said David Shean, president of the California Escrow Assn.

One reason: The time required for government processing, which averages 18 months for personal property seized and an additional 60 to 120 days as an escrow period for real estate.

Another reason: the government’s aim to get fair-market prices.

Carolyn Reynolds of the U.S. Attorney’s office in Los Angeles said, “Getting nearly the appraised value has been no problem.” As an example of property demand, she cites a Hacienda Heights house that has nine pending offers.

More than 125 real properties have been seized through her office since 1984, and about 40 are considered “under seizure,” seized but not yet forfeited to the government.

Among these is a 16-room mansion in Compton, described by Ralph Lochridge of the Drug Enforcement Agency:

The owner “knocked down six city blocks and built a huge home with a grand piano, Jacuzzi off the bar, a four-car garage, satellite dish, two sunken tubs, gold bath fixtures, a small room with weightlifting equipment and closed-circuit TV.”

Speaking in general, Lochridge added, “They say that crime doesn’t pay, but it pays real well.” Until property is seized? He laughed. “That’s right.”