What Would You Do? Self-Storage Auction Dilemmas
|Copyright 2014 by Virgo Publishing.|
|Posted on: 03/09/2013|
The following is part of an exciting 2013 content series titled "What Would You Do?" ISS asked managers and owners how they would react in difficult situations that can arise at any facility. We then asked experts to advise on their recommended course of action. To see all articles and slideshows in the series, enter code WWYD13 in the search box at insideselfstorage.com. The complete sequence will roll out over several weeks and be available in full by March 10, 2013.
Are self-storage auctions a cause of some anxiety for you? Reality TV shows such as "Storage Wars" have muddied the legal water for some self-storage operators by dispersing inaccurate information about the business. Now more than ever, it's imperative that lien sales are handled correctly and to the letter of a state's laws. There are so many facets to the process, from notifications and advertisements to the execution on auction day, that operators can feel nervous about proceeding.
The lien sale itself can be a source of worry, as so many challenging and unexpected things can happen. Do you know what to do in the face of a difficult auction scenario? Is what you would do the same as what you should do?
Inside Self-Storage recently reached out to in-the-field operators to learn how they would proceed in a couple of specific but common lien-sale situations that could happen at any facility. They were asked, "What would you do if ..."
The answers were provided by members of Self-Storage Talk (SST), the industry's largest online community. We then asked two of the industry's top attorneys to tell us what operators should do in each case. Our well-known experts are Jeffrey Greenberger, a partner in the Cincinnati-based law firm of Katz, Greenberger & Norton LLP, and Scott Zucker a partner in the Atlanta-based law firm Weissmann Zucker Euster Morochnik, P.C.
What would you do if a customer showed up to bid on his own items at auction?
SST junior member SafariLori, who prefers not to reveal her identity, says she doesn't allow customers to bid on their own units, and everyone who attends a sale has to sign a legal form saying they are not there on behalf of the delinquent renter. Allowing tenants to bid on their own unit is an incentive to not pay their rent, she says, to try to buy it back for cents on the dollar instead of satisfying the lien.
Jerry Hughes (SST member SMSSId), owner and manager of Save Most Self Storage in Caldwell, Idaho, responds by saying he used to restrict delinquent tenants from coming to the auction until his attorney informed him that the state lien law specifies “public sale.” He also points out it's difficult to know if a bidder is a friend of the tenant.
"We welcome all bidders. The tenant just has to realize he/she will be bidding against a pro," Hughes writes. "The regulars are quick to realize it’s a tenant unit and will usually bid them way up." He also points out that his legal notice includes the following to help address some of the problems, though he's never had to exercise the right: "Seller reserves the right to reject bids less than amount owed."
Richard and Beverly Haessler (RichardandBeverly), resident managers of Park Inn Storage in Odessa, Texas, agree, saying anyone can bid on a unit at his facility. It's state law. "I really don't care who buys it, but it must be empty in the allotted time or the contents reverts to the facility. If the tenant had called, I probably would have worked out a deal, so it's the same thing," Richard Haessler says.
Senior SST member MZC&D, who wishes to remain anonymous, says that if the tenant comes to try and buy his unit back, he as the facility operator is permitted to bid on the unit and bring the price up to what the tenant owed or what he sees as a reasonable amount to accept.
What SHOULD you do?
Greenberger: With very few exceptions, the state statutes either require you to allow the tenant to bid at sale or are silent on the topic, implying that he's allowed to bid. But the tenant showing up at his own auction is perhaps one of the best results of an otherwise horrible situation.
If a tenant shows up to bid on his own stuff, you should find every way possible to get those goods back to him, even if he doesn’t have all or any of the money owed, and even if you know the unit would sell for a lot more at auction. Others disagree, but my rationale is that when a wrongful-sale lawsuit is filed, all the tenant can generally seek is money damages.
Money damages arise from loss of use of the property that was stored in the unit, for example, sentimental or emotional items or others of personal value to the tenant. If the tenant ends up with his property back in his hands, even on the date of sale, there's really no monetary damage he can claim to suffer, and thus, no potential for a wrongful-sale and disposal lawsuit.
Every time you sell a unit, no matter how good you are, you're rolling the dice and could face a wrongful-sale lawsuit. Regardless of the outcome of the suit, you lose because you're spending time and money to defend yourself. If there's no sale, it's much more difficult for the tenant to sue.
For all of these reasons, if the tenant shows up at the lien sale, offer to sell him his unit for whatever money he has so long as he's out by the end of the day. And get him to sign a release so your good deed isn't punished with a lawsuit two weeks later.
Zucker: Self-storage foreclosure sales are, in the majority of states, “public” sales, which means the delinquent tenant can attend and even bid on his own property. Conceptually, this might appear to be a good idea from the perspective of the tenant, who may owe more to the facility in rent than the amount for which the unit sells at auction. But the idea loses its appeal if the facility operator makes it clear that he will pursue any deficiency he cannot otherwise recover at the sale. Some operators will even set a minimum price for the sale of the unit. In both cases, there's less incentive for the tenant to try to buy his items at the auction as a way to avoid paying the full rent owed.
There are grounds to refuse a tenant access to the facility during a lien sale. An operator has the discretion to allow bidders on his property only to the extent that he feels the auction can be held safely. If a delinquent tenant is belligerent or threatening in any manner, there is case law to support an operator’s decision to refuse access to that tenant. Unless the tenant can provide evidence that he is attempting to pay the debt to avoid the sale, access can be denied. Again, before barring the tenant from the sale, the operator should confirm that the tenant is not there to pay the debt. The decision to deny access is a significant one and should be carefully weighed.
What would you do if an auction attendee was unhappy with his purchase?
"Our auction bidder agreement specifies they purchase the unit 'as is, with no warranty.' Welcome to life in the big city," say the Haesslers. SafariLori concurs: "Our bidders are also pretty savvy about units being 'as is.' They don't want us to cherry-pick a unit before auction (which we would never do!), and they don't whine when nothing is there. More often than not, they get something they like. But that's the game, isn't it?"
Hughes just tells it like it is. He explains to tenants, "I sympathize with you, however, please re-read your copy of the auction rules. 'ALL UNITS ARE SOLD AS IS, WHERE IS.' Please bid accordingly. Now if that would have been a super unit, would you have told me about the great contents, and would you be willing to share the profits?"
What SHOULD you do?
Greenberger: Since the development of certain "reality" shows, we've had more and more unhappy purchasers because they don't understand that what they are buying, in almost every unit, is junk, despite the miracles that seem to occur daily on TV. The secret to preventing problems is a well-written set of auction rules signed by the buyer each and every time he attends a sale at your facility.
Among other things, these rules should indicate that you as the operator do not represent the unit contents, or the condition or value of the goods; that you have not performed a detailed inventory of the goods (West Virginia excluded); and that it is possible that the buyer will pay more than the goods are worth. In some states, you may be able to say you haven't entered the unit at all, depending on your state's inventory requirements.
Have your attorney draft a well-written set of sale rules including releases of all liability for damage, failure to obtain fair value, and personal injury that may occur at the facility. It should also indicate if you're going to exclude certain items from the sale, such as family Bibles or personally identifiable information. Make sure this is all clearly spelled out in your rules so you can enforce your rights against the buyer and protect yourself in the event that he enforces his rights against you.
Zucker: The bidders who generally attend self-storage auctions are looking for undiscovered treasures, so it's not unusual that those "hunters" will leave disappointed in what they eventually purchase. It's crucial that bidders understand in advance of the auction what the rules are concerning the sale, including what rights they have if they are dissatisfied with what they pay for. Facility owners should have all bidders sign a bid-rule sheet containing the conditions of the auction, including, but not limited to, the following provision:
Facility does not accept any liability on the goods purchased at the time of the sale. Goods are purchased in an “AS-IS” condition. No guarantees or warranties of any type or kind are expressed or implied with the purchase of any item. ALL SALES ARE FINAL!
If such a provision is included in the bid rules, buyers will not only be aware of the conditions upon which they are purchasing the unit, they will have waived their right after the purchase to seek any return of their payment or other remedies.
To read more great content in the ISS "What Would You Do?" business-challenges series, type code WWYD13 in the search box at insideselfstorage.com.