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No, it shouldn't work that way.
Why was it impounded?
It's unusual for them to impound an ATV in that situation.
However, they aren't supposed to put it up for auction if they 1) know who the owner is and 2) have not done a lawsuit to take ownership of the ATV (known as a forfeiture proceeding). As it stand this was "illegal" because it was a "taking without due process" which makes it unconstitutional.
You would need to visit with a local lawyer and let them contact the Sheriff's Office and see if they have insurance you can file on and if not then you will likely have to file a lawsuit.
However, there is no question that what they did was wrong.