Impediments to the Sale
In addition to the tenant's right to stop a lien sale, there are other actions that could derail a sale. One is the death of the tenant, which can delay the process while the probate court appoints an executor or administrator of the estate to sort out the tenant’s debts and other obligations. Another is when the tenant or his dependent is in the military. Under the Servicemember’s Civil Relief Act (SCRA), a lien foreclosure cannot proceed against a tenant, the tenant’s dependent who is in the military, or a reservist without approval from the court. Either of these situations would give rise to a delay and force an operator to involve himself in the court process.
However, these circumstances will not stop a sale if notice is not handled timely and correctly by the tenant. For example, the death of a tenant will not prevent a sale indefinitely, as it doesn’t stop the obligation of the tenant’s estate to pay its bills. If the rent is not paid for a deceased tenant, the property in the unit can eventually be sold through the lien process. Similarly, a tenant on active duty is not entitled to avoid the obligation to pay rent. The SCRA only delays the process.
Holding and Documenting the Sale
The last risk faced by an operator in the lien-sale process is the actual sale itself. A self-storage operator running a public sale must require all bidders to present identification and agree to the sale rules (preferably by executing a bidder’s rule sheet). The identification is important in case the bidder needs to be contacted. The rules are significant since they prevent the possibility of misunderstanding as to:
- How the sale is to be conducted (with reserve)
- The rights of the facility operator in running the sale (cash only, no warranties)
- When a sale is completed (payment and removal of property from the facility)
It’s through these rules that operators can avoid disputes and sale-related claims, not only from tenants, but from disappointed bidders.
Finally, the other area to consider is documentation of the lien-sale close out. It’s here a facility operator needs to prepare the proper sales receipt to the high bidder to acknowledge the sale and, when appropriate, handle the transfer of title when the sale includes a car, boat or RV. The operator must also calculate the sale proceeds against the tenant’s debt for unpaid rent and lien charges. If the tenant is entitled to receive proceeds from the sale (meaning the amount recovered is greater than the amount owed), many states will require operators to notify the tenant in writing. Further, if the tenant still owes the facility money after the sale monies have been applied, the facility is entitled to notify the tenant of the deficiency and seek to recover the balance.
Wrongful sales are a risk of running a self-storage business. But the number and severity of such claims can be diminished if the self-storage operator knows the law and prepares for expected obstacles. Of course, it must be said that, sometimes, the best sale is no sale. An operator should always feel empowered to hold a sale if he wants, but also to stop a sale if he feels inclined. You can’t be sued for a wrongful sale if you don’t sell your tenants’ property.
Scott Zucker is a partner in the law firm Weissmann Zucker Euster Morochnik P.C. in Atlanta, where he specializes in business litigation with an emphasis on real estate, landlord-tenant and construction law. He’s a frequent lecturer at national conventions and the author of Legal Topics in Self-Storage: A Sourcebook for Owners and Managers. He is also a partner in the Self-storage Legal Network, a subscription-based legal service for self-storage owners and managers. He can be reached at 404.364.4626; e-mail firstname.lastname@example.org.