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The Bottom Line Is Often Top Dollar : Orange County Homes Fetch Some High Prices at IRS’ High-Profile Auction of Seized Properties

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Times Staff Writer

The Internal Revenue Service is enlisting one of the world’s oldest desires to get the most from the properties it seizes from delinquent taxpayers.

It is the desire for a bargain, and the IRS is appealing to it by bundling up real estate parcels and selling them at high-profile auctions. But bidders looking for deals often end up paying top dollar.

“When you get a large group of people together, people get excited. Auction fever is real,” IRS auctioneer David Sherrell said before beginning an agency auction Wednesday in Santa Ana.

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Property-hungry bidders battled for six homes seized by the IRS for unpaid taxes. They paid a collective $500,000 for the residences, which included a triplex at Big Bear Lake and single-family properties in San Juan Capistrano, Laguna Beach, Mission Viejo and Tustin.

The day before, almost a hundred bidders gathered at the IRS impound lot in Santa Ana to compete for three cars, including a 1973 Mercedes-Benz 450-SL that went for $14,000--nearly top dollar in the current market.

On Wednesday, a $300,000 home in San Juan Capistrano sold for $212,500 and the winning bidder said he still faces the cost of evicting the current residents.

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Such relatively high prices are what the IRS auctions are all about.

“People come thinking they are going to pay 50 cents on the dollar just like they used to and they end up paying 90 cents,” said Gary Johnson of West Coast Brokerage in Fountain Valley.

At Wednesday’s auction almost 350 people--two-thirds of them spectators--had jammed into the Santa Ana Police Department auditorium by the time Sherrell started the action at 11 a.m.

A number left after discovering that 12 of the 18 properties advertised for sale had been pulled from the block because the owners coughed up enough of their delinquent taxes to persuade the IRS to hold off.

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But the bidding among those who stayed was hot. Hundreds of bids were made on the six properties as more than two dozen IRS officers kept order in the crowd during the frenetic 90-minute session.

But most of those who filled the room had come to study, not to buy.

“This was the first time I’ve been to one of these auctions and I’m ready to go to a few more before I start bidding,” said David Bland, an actor from Los Angeles. “Right now I’m going in blind.”

Those who bid and won generally were real estate brokers with experience at auctions. But even they were caught up in the heat of the bidding.

“How much did I pay?” gasped Dod Bateman as Sherrell closed bidding on a property and declared him the winner. The Irvine real estate agent made the high bid and will pay $212,500 for a San Juan Capistrano house he says is worth $300,000. “Feel my pulse, it’s at about 185,” he said as the bidding ended.

In recent months, the IRS Laguna Niguel district office, the nation’s third largest, has moved into high-profile marketing of items seized for tax liens.

The agency is peddling goods through newspaper advertisements, sealed-bid sales and auctions of everything from jewelry to luxury homes.

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“It used to be that we only had three or four people show up at an auction, but now we count them in the hundreds,” said Sherrell, an IRS revenue officer for almost 20 years and, since January, the agency’s only full-time auctioneer.

“We’re getting 65% to 70% more now for land than we used to, and that means a better deal for the taxpayer.”

The IRS keeps only enough from the sale of a seized property to pay the federal income taxes that are owed. Anything left over is given to the taxpayer, an IRS spokeswoman said.

Prospective buyers are warned that, among other things, the foreclosed-upon homeowner has the right to buy back the property for six months after the auction. They also learned that they had to pay at least 20% down--either cash or certified check--immediately after the sale.

The local bidding is part of a national “auction mania” among government agencies, according to George Chelekis, a Florida-based author who recently assembled a 700-page listing of auctions called “The Action Guide to Government Auctions.”

Government property holdings have exploded in recent years--largely because of drug-related confiscations and tax seizures--and agencies have shown increased savvy in peddling it, Chelekis said. Combined, federal agencies hold more than $400 billion in seized property. The IRS holds liens on more than 800,000 properties, double the number it held in 1980, he said.

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Orange County, because of its affluence and a correspondingly high debt level, accounts for a substantial chunk of the IRS seizures, Chelekis said.

Sherrell said he was trained by two professional auctioneers in Kentucky last year. So far, he has set up 30 auctions in the five counties covered by the Laguna Niguel District--San Bernardino, Riverside, San Diego, Imperial and Orange.

To boost attendance at the auctions, the Laguna Niguel office has increased its advertising budget and installed an auction hot line. And after more than 450 people showed up for the first of the IRS’ large real estate auctions in Santa Ana in March, the department put together a seminar for interested buyers.

That class, held last week, drew more than 700 people.

The IRS’ next Orange County auctions are scheduled in September and November. Auctions also will be held next month in Riverside and San Diego counties.

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