Irate Homeowners Sue Over Auction Discounts : Real estate: Trabuco Canyon couples claim fraud as later buyers got identical models for up to $110,000 less.

In what could be the first such suit in the Southland, six couples living in an expensive Orange County development have sued the home builder for selling models similar to theirs at steeply discounted auction prices shortly after they moved in last summer.

The suit claims that D. T. Smith Inc., a Los Angeles builder with offices in Newport Beach, intentionally concealed auction plans from the couples so they would buy homes at the $300,000-$400,000 retail price rather than waiting to grab a bargain at auction.

As the residential market in Southern California has slumped into recession, the number of auctions in new developments has skyrocketed. These auctions have prompted increasing complaints from new homeowners who say auctions in the same tracts lower the value of their residences, often leaving them with mortgages that exceed the market value of their homes.

The suit, filed in Superior Court in Santa Ana earlier this month, alleges that D. T. Smith tried to conceal plans for the auction. When some of the couples later learned of the auction, it alleges, the builder told them that the auctioned properties would be sold at prices comparable to what the couples had paid for their homes.

But D. T. Smith homes in the Dove Canyon development in Trabuco Canyon were auctioned in October for prices that ranged from $70,000 to $110,000 less than identical models purchased a few months earlier by the six couples, according to the suit.

The builder was served with the suit last week and has not yet filed a response, said James F. Mowcowitz, executive vice president of D. T. Smith.

He said that no Smith official ever promised the homeowners that the auction prices would be roughly the same as the listed retail prices. He said the company has “the right to market our product in any way that is legal. . . . And if an auction was the best way we determined to sell the product, then we have a right to do that.”

Smith officials made no guarantees that the value of the homes sold to the six couples would not decline, he said. “And what would happen if the prices of the homes went up? Would they refund us the money?” he asked. Other developers have voiced similar responses when irate buyers protested their auction sales.

But the six couples suing Smith don’t see the issue as one of falling property values, said their attorney, Gary Dapelo.

Instead, they claim they were defrauded. “Our allegation is that there wasn’t full disclosure, that the auction was planned before escrows closed but that the homeowners weren’t told about it,” Dapelo said.