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Avoiding Self-Storage Legal Danger With SCRA Compliance

Collecting unpaid self-storage rent is fraught with legal danger, particularly if a tenant is on active military duty. Follow these guidelines to ensure your business is in compliance with the Servicemembers Civil Relief Act before your next lien sale.

By Roy Kaufmann

Collecting unpaid rent on self-storage units is neither fast nor easy. Moreover, the process is fraught with legal danger. One misstep and you could find yourself sitting behind the “defendant” sign in a courtroom. Or equally disheartening, if not more so, the government could slap you with penalties for noncompliance with the Servicemembers Civil Relief Act (SCRA), which could amount to hundreds of thousands of dollars.

This was the case for San Diego-based Across Town Movers. The company settled a suit with the U.S. Department of Justice in 2015 in which it agreed to pay $170,000 in penalties for selling the belongings of a deployed Navy officer. Such sales are prohibited without a lien, and operators can’t get a lien without a court order if the client is an active servicemember.

The United States has statutes, including the Fair Debt Collection Practices Act, to protect consumers from abuses such as unfair collections practices. Although federal law sets rules regarding your right to lien, seize, sell and dispose of tenant property, each state is different and may enact stricter rules. It’s your responsibility as a storage operator to be aware of and heed these rules, lest you be forced to suffer the consequences.

The Act

SCRA is a far-reaching consumer-protection act that was passed in 2003 to safeguard active-duty military personnel from certain penalties, including liens and foreclosures. Its purpose is to provide these personnel with relief from worries such as bills while they’re serving their country. Your self-storage business is subject to the SCRA, and noncompliance can be costly. Areas the SCRA covers include:

  • Mortgage relief
  • Lease termination
  • Eviction protection
  • Interest rate cap of 6 percent
  • Stay-of-court proceedings
  • Reopening of default judgments

Now more than ever, it’s critical for self-storage operators to grasp the scope of the SCRA. Violating the act can result in fines and penalties, including imprisonment. The SCRA grants protection not only from liens, but from the sale and disposal of property. This protection extends to members of the military reserves when called to active duty as well.

Notification

You might think a servicemember has a duty to inform your storage facility if and when he’s going on active duty. It would save you a lot of time and trouble if he did. In reality, servicemembers may have a moral duty in this area, but they don’t have a legal obligation.

However, there are steps you can take to encourage your military tenants to notify you of their status. For example, you can post signs asking them to inform the storage manager before they go on active duty. This is a request, not a legally enforceable rule, but it may make for fewer headaches. You can also add a line or a paragraph on the lease asking if the prospective tenant is in the military or reserves; although this information can’t be used as proof in a court of law. You should also ask for the names and numbers of family members in the event of an emergency. This information can be used later as a means of helping identify the tenant and his military status.

Another option is to ask all tenants to sign a waiver saying they voluntarily give up their rights under the SCRA. This waiver can’t be attached to the lease, however, and tenants can’t be compelled to sign it as a condition of renting. The waiver must also stipulate it only applies to the lease. If the tenant does agree to sign, he must do it during or after his period of active duty. If it’s before, it’s unenforceable.

Verification

When a tenant stops paying rent and you have no information about his military status, you must find out before you place a lien on the unit or auction the property. For this endeavor, there are a number of paths to consider. Many turn to the Defense Manpower Data Center (DMDC), the government office in charge of curating information on U.S. Department of Defense personnel.

Unfortunately, even though DMDC is a government entity, this source is rife with errors and outdated information. The center is working to remedy this situation, but you’re still taking a risk by relying on the information it provides. Unless you have the tenant’s Social Security number, you may get results for relatives or others with the same or similar names. These “vouchers” come with disclaimers and are rarely accepted by courts as proof of military status. In addition, getting these reports takes time, sometimes weeks or months, due to the huge backlog of requests.

If timeliness is important or you have a batch of requests to process, you’re better off working with a private company. You won’t need to provide a Social Security number, as these companies use other channels to uncover the proper documentation. They provide verification, plus an affidavit within 24 hours you can take to court.

It’s important not to make any moves until you have this verification. Once you do, if the tenant isn’t a servicemember, you may proceed with placing a lien on the storage unit. If the tenant is on active duty, however, you’ll need a court order before you can safely place a lien, evict or foreclose. Some states allow you to place a padlock on the unit in the interim.

Legal Requirements

Storage operators can run into trouble outside of the SCRA as well. Consumer protection is complex and evolving. A tenant’s circumstances, including his age, and your state’s rules can come into play. State laws on selling and disposing of others’ property provide certain rights and obligations to both the self-storage owner and tenant.

When it comes time to decide whether to sell or dispose of a delinquent tenant’s property, talk to your lawyer first. Most tenants would view the sale and disposal of their goods as a personal assault upon their household. Many keep important papers, family heirlooms, memorabilia, photos of loved ones and other valuables in their units. Such sales could result in potentially expensive lawsuits.

With consumer-protection claims in general—and sale-and-disposal claims in particular—courts want careful documentation. They’ll likely ask for proof that you properly informed the tenant of the past-due bill, you gave him time to pay, and you checked to see if he was a servicemember.

You can usually find the legal requirements and timelines in your state's consumer-protection statutes.

It’s critical you follow the guidelines carefully and comply with the requirements for all notices to your customer of your intentions and his obligations. You should also consult with your attorney and insurance agent, get a copy of your state’s consumer-protection statutes, prepare a timeline and follow it carefully. Do this regularly, since rules and regulations change often.

Penalties

Going to court over selling a tenant’s belongings rarely turns out well for a self-storage owner. Most juries will feel sorry for the plaintiff. In court, stored items suddenly seem to take on a sentimental patina they may never have had otherwise. The emotional appeal to a jury is almost certain, so litigation always poses a risk. The least a jury will expect to see is that the storage operator adhered to the laws and gave notice. Otherwise, he runs the risk of looking like a thief in the minds of jurors. This will only serve to reward plaintiffs.

In many areas, a violation of the consumer-protection act carries stiff penalties. These may include fines that have tripled as well as the plaintiff’s legal fees. A claim of hundreds of thousands of dollars in lost property might be more than your insurance policy covers. This can leave your facility responsible for the balance.

Consumer-protection acts in various states require you to carefully consider your right to sell and dispose of property owned by a tenant. Know the laws in your state before proceeding.

Attorney Roy Kaufmann serves as the director of the Servicemembers Civil Relief Act Centralized Verification Service in Washington, D.C. As a recognized authority on the Servicemembers Civil Relief Act (SCRA), he has published hundreds of articles and hosted many webinars. His teachings help law firms and businesses remain compliant with the SCRA rules and regulations to avoid costly fines. For more information, visit www.servicememberscivilreliefact.com.

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