If you violate the bankruptcy laws, particularly a judge’s Automatic Stay Order, you’re facing the possibility of monetary sanctions, some of which can be severe against you and in favor of your debtor/tenant. Think in terms of contempt of court. Judges don’t like to have their orders ignored or violated. You may say it’s innocently ignored, but remember, in bankruptcy world, innocently ignoring an order is not much of a defense.
You also need to learn how to use PACER, or have someone that knows how to use it, to check bankruptcies before you send lien notices and conduct your sales. PACER is the Federal Court’s docketing system, which allows you to quickly get a good idea about whether your tenant has filed a bankruptcy. Some would argue that you’re obligated to check PACER before you begin a lien sale.
Legal Threat No. 3: Missing a Change in Your State Lien Laws or Lien-Sale Procedures
Many states have undertaken changes in lien laws over the last year or two. Many more are eyeing these types of changes in 2011 and 2012.
First, get involved with your state associations to make sure the lien-law changes they propose are in your businesses’ best interest. Don’t let a committee of 12 make these decisions for you. Second, if and when your lien laws change, make sure you have a way of being aware of those changes so you don’t sell or serve notices by a method that’s no longer permitted under your state statutes.
Legal Threat No. 2: Wrongful Sale Verdicts
Wrongful-sale lawsuit verdicts rendered against self-storage owners and some courts’ refusal to enforce the value and negligence limitations in your rental agreement continues to be of great concern. Most of the large-dollar verdicts have come from cases in which the tenant’s property shouldn’t have been sold in the first place. Some cases over the last few years have had verdicts ranging from $1 million to almost $4 million. Many other cases that resulted in lower-dollar verdicts—$50,000 to $900,000—were for other types of “technical violations.” Perhaps the tenant was delinquent but the operator didn’t follow the statute exactly. All of these cases are alarming. (You can read more about cases such as Dubey v. Public Storage in the article archives at InsideSelfStorage.com.)
If you’re going to conduct lien sales, you must have a system of checks and balances to avoid making a mistake, and you must really and truly understand how to properly conduct a lien sale. Note: Understanding how to properly conduct a sale doesn’t include, “I learned to do it that way from the previous manager.” There are statutes that must be followed exactly to properly perform a lien sale.
If you haven’t read your state statute in a long time, you don’t believe you’re selling properly, or you’re ignoring parts of the statute because they’re inconvenient or difficult, then buy yourself some legal advice and learn how to do sales properly by having your attorney create a protocol for you. Or you can buy a set of prepared protocols from an industry expert, customized to your state and preferably to your particular operation. If you’re not going to do this, get out of the business of conducting lien sales.