Legal Remedies for Vehicle-Storage Operators: Methods for Recouping Unpaid Rent and Reclaiming Your Space
Copyright 2014 by Virgo Publishing.
By: Jeffrey Greenberger
Posted on: 07/28/2012



 

Vehicle storage—particularly outdoor storage—is a very different business from traditional self-storage. Nowhere is the difference more distinctly drawn than when a tenant stops paying rent and the facility operator has to do something with the stored vehicle. Further complicating matters, there’s some question about whether outdoor vehicle storage is really traditional self-storage, depending on the definition in your state.

The biggest problem is many stored vehicles have a pre-existing lien and, in most states, your self-storage lien doesn’t trump it. Thus, even though you may follow some of the suggestions in this article for recouping lost rent, including obtaining a title to sell a vehicle, you may not be able to successfully do so. This is because you likely won’t raise enough money in the sale to satisfy the superior title lien, and no one wants to buy a vehicle for which a clear title cannot be obtained. Effectively, therefore, you cannot sell the vehicle.

Understanding Liens

So what do you do if a vehicle like a boat or RV goes into default at your storage facility? The answer depends on your state. A few states have clear procedures for obtaining a title to sell a vehicle in the event of default. These procedures need to be followed carefully. You don’t want to wrongfully sell a vehicle in these states because your liability can be extensive if you do.

The most notable example of a specific procedure to sell a vehicle is in California, which outlines a series of steps you must take, including notices to the appropriate state departments for registration of the vehicle or vessel. The common theme in the states where there’s a clear procedure for obtaining the title and selling the vehicle is the notice to the lienholder, which gives the lienholder the opportunity to “scream or die” before your ability to sell takes precedent over a pre-existing lien.

Many of you are thinking, “I don’t remember reading anything in my statute about whether or not my lien is superior to the vehicle lien.” It’s almost certainly there, you just haven’t read your statute the right way to look for it. Almost every statute contains a sentence or two that discusses the nature of your lien and, if you look, it will almost always say your lien either is or isn’t superior to pre-existing liens.

Other states, such as Virginia, allow for the storage lien to be superior, but only to a limited dollar figure. Again, there’s a question as to whether it’s worth all the paperwork and risk to the facility to sell a vehicle only to be able to claim the first $250 or $500 of the proceeds. If there’s a pre-existing lien, it could make claim to any sale proceeds, up to the amount of lien.

Some states don’t have a formal written procedure for the sale of a vehicle in default. That doesn’t mean there isn’t one, it just means you have to work a little harder to find a solution. In some states, there are statutes governing the operation of private parking lots, often called garagemen statutes. There is often some type of lien statute for mechanics in most states. Check with your local legal advisor to determine whether you can avail yourself of the remedies under what I call “garage lien” statutes.

In some states, it’s clear you can assert a garage lien against the vehicle. In others, there are prerequisites, such as declaring yourself to be a private parking lot and posting signage. In still other situations, the determination may be made depending on whether the vehicle is stored in an enclosed locked unit, a non-segregated space, indoors or outdoors.

At the end of the day, almost every one of these statutes is affected by the existence of a superior lien. Again, while you may be able to assert a garagemen’s lien, that lien is still subordinate to a pre-existing title lien. This would make all the rights and remedies available to you somewhat moot because you probably won’t be able to sell the vehicle for enough money to pay off the lien and still make it worth your while. There’s also the risk of a lawsuit that follows the sale of a vehicle if there’s a pre-existing lien.

If you choose to use your state’s mechanics lien statute, pay close attention to it. I question whether a storage operator is truly eligible for it. Typically, you’re not taking the vehicle in for repair or improvement before the storage charges are incurred, and these statutes speak of a repair improvement before storage charges are applied.

Some operators have had no problem obtaining a title under a mechanics lien act in their state. While the Department of Motor Vehicles (DMV) may not have given them a lot of trouble, an operator may have “skipped” a few words in the affidavit he signed to get the title, and that’s a problem. While a title may be issued, that doesn’t mean DMV made an independent inquiry as to whether an operator met all the requirements. That would happen later if the operator were sued by the vehicle owner or lienholder for making an improper and, dare I say fraudulent, affidavit to the DMV.

Other Options

In states where a solution is not clear, the best option may be to simply have the vehicle towed by a local towing service rather than risk your time, energy and money trying to sell it. In most states, towing companies have terrific lien rights, a lot better than any you, as a storage operator, may ever have.

To use this alternative, there are almost always prerequisites, for example signage and perhaps even clauses in your rental agreement that allow you to tow in the event of a default. Check with your legal counsel and the towing company you intend to use to ensure you’ve complied with all requirements. You may not recoup your storage charges this way, but in the end, you’ll probably save a decent amount of time and money by quickly reclaiming your space and avoiding legal risk.

In some states, there’s simply no remedy available. In states such as Ohio, it’s virtually impossible to consistently obtain titles to vehicles based on storage liens or otherwise. Your success depends on your luck of the draw at the DMV window. In these states, the best remedy for a vehicle in default is probably an eviction.

When I say eviction, I mean a court action in Forcible Entry and Detainer, similar to removing a tenant from an apartment, shopping center or office building. This is the act of filing a complaint with a court of law, having a hearing, and receiving the right to remove the occupant’s property from your rented space. In an apartment, it’s the furniture, dishes and food. In a vehicle-storage facility, it’s a car, boat, RV, etc. I contend you have no option but to evict in some states. Thus, the argument about time and expense is moot.

Preventing Defaults

Almost always, a vehicle brought to your facility will already have a pre-existing lien, although it is possible a refinance could occur or a lien could be placed on the vehicle after it’s put in storage. The key is to ask questions about lienholders and other vehicle information at the time of lease signing, not when the vehicle is in default.

The most important thing you can do in vehicle storage is to get the relationship right in the first place. That means knowing you’re storing a vehicle, what vehicle you’re storing, who is the actual title holder, and who are the lienholders. You need to know enough about the vehicle to later obtain a copy of the title if necessary, including the vehicle identification number (VIN) or hull number and other identifying information. In the best case, a copy of the title and registration should be on file with you at the inception of the tenancy. Having this information in advance, as well as ensuring your tenants are set up to pay rent via an automatic bank withdrawal or credit card authorization, will greatly reduce the number of vehicles that end up in default.

The next step to being a successful in vehicle storage is knowing your rights before a vehicle goes into default. This is something worth discussing with your storage attorney or local legal counsel. Understand your rights so you know how to react if a tenant goes delinquent.

Also make sure you stay in touch with the lienholder if there’s a default. A lienholder generally doesn’t want its collateral sold for pennies on the dollar, regardless of whether you’re allowed to sell it. This  simply causes more title problems for the lending institution. You’ll often find that if storage charges are not being paid, neither are monthly payments on the vehicle. Sometimes it’s simpler to work with the bank to pay you some storage charges and allow the vehicle to be repossessed than to go through all the steps listed above.

Most important, do not force the title. Perhaps it's better to say, do not intentionally flub your title paperwork just to get a title so you can get a vehicle out of your space. If all you’re interested in doing is getting the vehicle off your property, you have other remedies, be it towing or eviction. Remember that most forms submitted to state motor-vehicle departments are in the form of an affidavit, meaning a statement that you’re swearing is true and accurate. If you cannot agree or you have to “skip words” to get to the end result, do not sign that affidavit. The stakes, by way of a lawsuit or wrongful sale, are clearly greater and much more expensive when you’re involved in a vehicle sale.

Jeffrey J. Greenberger is a partner with the law firm of Katz Greenberger & Norton LLP in Cincinnati and is licensed to practice in Kentucky and Ohio. Mr. Greenberger primarily represents the owners and operators of commercial real estate, including self-storage owners and operators. To reach him, call 513.721.5151; visit www.selfstoragelegal.com.