What should we take from the two recent large verdicts for wrongful sale? It seems courts have no tolerance for an operator’s mistake in selling the belongings of someone who isn’t in default. Plus, they are finding ways to make sure operators are punished handsomely for these errors, including awarding punitive damages well in excess of the value of the property sold.
While there’s no absolute way to guarantee you’re right about every defaulted unit you sell, you should have a solid set of crosschecks that ensures the unit you’re selling belongs to the tenant, and the tenant is actually in default, not a victim of a misapplied payment or other error on your part.
Know Your Statute
Many operators don’t regularly review their state statutes regarding lien sales. You can’t conduct a lien sale safely without frequently reviewing your statute. Almost every default presents some wrinkle that, read in light of the statute, might change your view of the statute or how to handle the default.
Your best option is to have your attorney prepare a checklist and timeline summarizing your statute’s various stipulations to properly comply with the law. These should include your company’s policies such as reaching out to the tenant to settle the debt before a lien sale. Many people think they can simply follow the procedure from one state, but this is incorrect. While many statutes are similar, they’re not identical.
As an example, take the notice that generally must be sent by you to the tenant before exercising your lien-sale rights. Many operators refer to this as the “certified letter.” Most statutes that require some type of certified letter have some similarities, like requiring the letter to include the owner or manager’s contact information, and the date, time and place of sale. However, there are differences in the 49 statutes.
In some states, the letter must be delivered via general mail and Certified Mail. Some statutes require certified or personal delivery, others registered mail. Some require that you mail the notice to any alternate contact in the rental agreement, to all lien holders, or even the Department of Taxation before it is valid.
Some statutes require that the notice include an itemized statement of all charges due, others do not. Some require you include all charges you expect to incur up to the date of sale, others do not.
The failure to review and understand your statute may cause you to use a notice that’s not appropriate or correct for your state, thereby creating a potential defect. If you’re going to perform lien sales, you have to do them properly to avoid the possibility of someone raising a defense or claim of improper sale that could result in a judgment against you.
You should not conduct any lien sales unless you have self-storage insurance coverage for wrongful sale and disposal. This is specialty insurance not included in your liability policy―it’s a rider you have to purchase.
Given the recent large judgments for wrongful sales, you should buy as much coverage as you can possibly afford. Even if you have not wrongfully sold, most of these policies provide a defense to the claim. Do not think that because you have insurance you can be sloppy about your sales. The insurance company will likely review your lien-sale process before issuing coverage.