My only question is since I'm verifying the serial number with this shouldn't apple be able to contact the owner through the cloud account and at least give the original owner an opportunity if they decides to communicate via email with me to get it unlocked. All the owner officially has to do is remove The device from their cloud account. As for the owners precious information being seen by secondary buyer that's complete a nonexistent situation, in order to gain access to the cloud device you have to reformat the device to as new condition as part of the unlock process
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You've spun a scenario that's tailor-made to a very unlikely circumstance, and you wonder why Apple's system doesn't meet your needs. (The vast majority of lost/stolen iPhones and iPads are not sold at police auctions.)
It seems so simple to you; Apple sends out an email:
"Someone is in possession of an iPad that is locked to your iCloud account. If you don't mind them using it, here's how to unlock it for them." (Apple wouldn't facilitate communication between you and the original owner, there are far too many privacy, legal, and safety risks.)
Is that all Apple's email would say? It seems likely it might also say, "If you have reported this item to the police as lost/stolen property, you may want to contact those authorities to tell them that Apple has information that may lead to the recovery of your property." The authorities can then contact Apple, as described here:
http://www.apple.com/privacy/government-information-requests/
Do you seriously think that most people who have a lost/stolen iPhone or iPad have both collected an insurance settlement AND would generously turn off Find My iPhone for you? How many might be vengeful? How many might call the police and say, "Apple knows who has my iPad?" (Since it's likely they had to file a police report in order to make an insurance claim, their insurance company probably also
requires that they report this information to the police.)
Maybe the police show up at your door. "Here's my receipt, I bought it legally at a police auction." "Well, we now know who the rightful owner is. Under the terms of the auction, you have to give it back."
It's the reverse of the old saying, "Finders keepers, losers weepers." The person who lost the thing does not have to be considerate of the person who found it. The person who found it has no expectation that they'll be able to use it. What is true is, "Caveat emptor." Let the buyer beware, even when buying from the police.