The Risks of Sale and Disposal: Words of Caution and Guidance for Self-Storage Operators
Copyright 2014 by Virgo Publishing.
By: Michael Rice
Posted on: 01/21/2010



 

Selling or disposing of the stored belongings of a delinquent tenant is one of those responsibilities no self-storage owner enjoys. It’s also an action fraught with potential liability if you fail to do it according to the law. All property is not created equal, and you may need to take special precautions when dealing with vehicles or other titled items.

Know the Law

Your right to lien, seize, sell and dispose of property belonging to tenants is spelled out in statutes beyond the language of your rental contract. Applicable laws include state lien laws, consumer-protection statues, the federal Fair Debt Collection Practices Act, the federal Servicemembers Civil Relief Act and other consumer-protection vehicles. Add the fact that consumer protection is a complex and evolving issue that may take various forms depending on your state and individual circumstances, and it becomes clear that you must carefully consider your right to sell and dispose of property stored in your facility.

When it comes to deciding whether to act on your lien against a delinquent tenant’s property by selling or disposing of it, it’s strongly suggested that you do the following: 

  • Consult with your attorney and insurance agent
  • Obtain a copy of your state’s lien laws and consumer-protection statutes
  • Prepare a timeline for the statutory notice requirements to your delinquent tenants
  • Follow the statute conservatively in implementing your rights under your storage contract

The consultation with your attorney and insurance agent should be ongoing, not merely for a certain time period or a particular circumstance. The law dealing with consumer rights is continuously being refined by the legislatures and courts, and it’s important that you keep abreast of developments that may affect the manner in which you do business. 

The Risk of Lawsuits

Lawsuits are a real concern in the wake of a sale and disposal action. Many people store personal items in their units such as heirlooms, memorabilia, photos and important documents. As a result, the sale and disposal of this property may be seen as a personal assault, and tenants often become upset when their items are auctioned to strangers. The current economic climate may be an aggravating factor for potential litigation. Tenants who are struggling to make ends meet may be particularly sensitive to perceived wrongdoing on your part and seek legal action in response.

Additionally, if you have commercial tenants storing business-related articles on your premises, you run the risk of exposing their clients’ business records and personal information in the auction, thereby inviting additional claims not only from your tenants but also their clients. This is not the forum for a discussion of privacy issues in this country, but you need to be aware that, should it be alleged that someone’s identity was stolen as a result of an auction, there will likely be adjunct lawsuits against you arising from people with whom you have no contractual business relationship.

Avoiding lawsuits is in your best interest since they can be expensive and expose your business to a costly legal judgment. Plaintiffs who’ve had their belongings seized and auctioned will generally appear sympathetic to a jury. The emotional effect on a jury is always a risk and cannot be underestimated. Items that may not have been worth much while in storage suddenly take on a sentimental attachment under the scrutiny of a legal proceeding. To avoid being perceived as insensitive, the defendant (self-storage owner) must demonstrate complete adherence to the notice requirements and timeframes prescribed by state statutes for such actions.

For consumer-protection claims in general, including sale and disposal claims, the courts require careful documentation of the defendant’s actions prior to the sale or disposal in question. Your state’s lien laws and consumer-protection statutes normally include specific legal requirements and timelines for these sales. It’s critical you be aware of these requirements and comply with the law regarding your right to place a lien on and sell a tenant’s property. Also be sure to comply with the requirements spelled out in the statute regarding your duty to notify your tenant of your intentions and his obligations.

How important is it for you to follow these laws and discuss these issues with your insurance agent and attorney? In financial terms, it literally pays to be cautious. The risks for violating your state’s consumer-protection laws may be extremely costly. In many jurisdictions, penalties are contained in the language of the statute and may include triple the plaintiff’s claimed damages (or more) in addition to paying the plaintiff’s (customer’s) legal fees.

If you were to find yourself in a case where your customer alleged hundreds of thousands of dollars in lost property, such a jury award may well exceed the limits of your sale and disposal liability insurance policy. As a result, your facility would be responsible for paying the balance of the judgment not covered by your policy. 

An Alternative to Lien Sales

Since the laws governing liens on property and sales of such property may seem to provide more benefit to the plaintiffs than the defendants, you should be aware of an alternative available in virtually every state that may obviate lawsuits deriving from lien seizure and sale: your state’s eviction process. This article is not intended to provide a step-by-step guide to eviction, and there have been very scholarly and informative articles on the subject written by people who have experience and knowledge in such matters. However, the eviction process is available to self-storage facilities just as it would be to apartment owners and the like.

While the process may differ in various jurisdictions, in most cases, it follows a pattern requiring the facility owner to file an eviction order with the court which, if granted, can be given to the local police or sheriff to execute. The potential benefit of this alternative is that once an eviction is filed and granted, the facility may become once-removed from the process by involving the court and the police or sheriff. At that point, a lawsuit filed solely against the facility becomes much less likely and far more difficult to prosecute.

Once again, this article is not intended to be construed as advice to use this option. However, it may be in your best interest to discuss this alternative to traditional lien sale and disposal auctions with your attorney and insurance agent. 

Special Considerations for Vehicles

When your lien sale includes vehicles, beware. When faced with auctioning a boat, car, truck, motorcycle, RV, trailer, etc.—essentially any property for which ownership is demonstrated by a title filed with the authorities in your state—it’s important you know and understand your legal obligations regarding the sale of such items.

Some insurance companies have defended cases in which the insureds have been sued by people who purchased vehicles at lien sales. In these cases, the purchasers discovered the vehicles they bought could not be titled to them because they were under lease and, therefore, not owned by the tenant who was in arrears.

In the event that you intend to conduct a lien sale involving a motor vehicle or any other form of titled property, contact the proper authority―whether it’s your state’s motor-vehicle department or other agency―to obtain and understand the local rules regarding such a transaction. Most states have notice requirements that may be far different from those contained in the state’s self-storage lien laws. In addition to the lien laws and consumer-protection statutes, the motor-vehicle regulations may impose completely separate but required rules regarding these transactions. 

Dealing With Abandoned Records

If you find a unit that appears to contain records, immediately consult with a knowledgeable attorney or the appropriate state agency prior to selling or disposing of any boxes or documents. As a self-storage owner, you don’t want legal liability imposed on you for personal or sensitive information that falls into the wrong hands.

In today’s economic uncertainty, it’s always wise to consult an attorney and your insurance agent to ensure your sale and disposal practices comply with applicable laws and limit your exposure to potential claims and lawsuits. Good risk-management practices contribute greatly to protecting your business and your bottom line. 

This article is not intended as specific legal advice and should not be substituted for the advice of an attorney who specializes in the self-storage industry. 

Michael Rice is the manager of claims for Phoenix-based MiniCo Inc., which provides specialty programs for self-storage businesses including property and casualty insurance and tenant insurance. For more information, call 800.528.1056 visit www.minico.com.

Related Articles:

Managing Self-Storage Delinquencies, Bankruptcies and Abandonment

A Lesson in Self-Storage Value Limits and Wrongful Sale: Dubey vs. Public Storage

Determining How Long to Keep Tenant Files and Abandoned Records in Self-Storage

Abandoned Records in Self-Storage: Whose Responsibility Are They?