By Murphy Klasing
When I defend cases in which facility operators have been accused of violating lien-sale laws, I always remind the jury that this is the self-storage business, not the self-auction business. Despite what many “Storage Wars” viewers may believe, auctions aren’t a way for operators to make money. Nevertheless, lien sales are a necessary part of the industry. When a tenant stops paying rent, an auction is recourse for the operator to remove that customer in favor of another who will pays his bills.
One of the most important things to remember when conducting an auction is the process by which a self-storage operator can foreclose on the belongings of a tenant without a judge’s order is an “extraordinary” remedy. Normal people tend to think of “extraordinary” as meaning remarkable, exceptional, amazing, sensational or phenomenal, but a lien sale is rarely any of these things.
A self-storage auction is “extraordinary” in that it’s an unusual occurrence. When it comes to lien sales, various states have given storage operators this remedy to streamline the business, but it doesn’t come without a price.
Of the lawsuits I’ve handled in which the plaintiff claimed a lien sale was conducted improperly, 100 percent have involved allegations that the operator failed to follow one or more technical aspects of the lien-sale process. Plaintiffs accuse self-storage businesses of:
- Not properly noticing the sale
- Conducting the sale on the wrong day
- Not posting the sale in the newspaper long enough
- Not conducting a proper inventory
- Failing to have a sufficient number of bidders
- Failing to have a written lease
When they’re correct on just one of these or another technical violation, the self-storage operator can be in trouble.
To understand why, put yourself in the court’s shoes. From its perspective, your state legislature went around the court to grant you authority to take someone else’s property without its assistance. Remember, we live in the United States, where your life, liberty and property can’t be taken from you without due process of law. In the context of a self-storage lien sale, the only “due process” the tenant is given is a set of specific rules the facility operator must follow rather than obtain a foreclosure order from the court. In the court’s view, if you want to act as judge and take away someone’s property, you’d better follow every rule without exception or excuse.
Thus, if you conduct auctions without a firm grasp of the rules and a solid plan to not only follow the law but maintain proof that you did, the court will administer its own due process against you. This is another reason the courts state that your holding a lien sale is “extraordinary” and not business as usual. If you want to proceed to the bonus round (the sale), you have to win the game (conduct the pre-auction process flawlessly).
Tiptoe Around the Mines
My advice is to follow the rules. Here are five key tips to help you travel safely through the minefield.
1. Create an auction checklist. Most states require that you send a notice of the lien sale to the last known address of the defaulted tenant. There are typically specific requirements regarding notice language, stating the amount due and indicating an auction is coming or will be held on a certain date. Create a checklist that includes all of the requirements you must follow before selling someone’s possessions. As each requirement is met, initial the box next to the item and date it. Keep a copy of the checklist in your files.
2. Keep copies of everything. Keep meticulous records. Copies of the default-notice letter, the publication of the auction notice, the aforementioned checklist, your inventory of the unit and anything else your state requires should all be placed in the tenant file.
3. Wear the “white hat.” Review your files with the best intentions. Ask yourself, “If I was a juror on a future lawsuit about this auction, would I believe the self-storage company did everything it could to inform the tenant about the auction in hopes of preventing it?” Did you call the tenant more than the law requires? Did you send letters? Did you document any conversations with the tenant in a ledger-note file or the tenant’s account file? Make sure you’re comfortable that you’ve done all you can to avoid selling the unit.
4. Use the alternate contact information. One of the worst things you can do in a default situation is fail to call or e-mail the alternate contact person. While most, if not all, states don’t require you to do this, why have the information if you aren’t going to use it? That’s precisely what a jury will be asking itself while deliberating on your fate. If your efforts to reach the tenant have failed, be able to show the court and jury that you also attempted to contact the alternate person in hopes of avoiding an auction.
5. Conduct the sale as the law requires. If your state doesn’t allow online auctions, don’t hold them. If your state requires the auction have a certain number of bidders present, don’t proceed until there are enough people. If your state requires you to tell the tenant the date of the auction, tell him. Don’t think that any hyper-technical requirement is silly or can be avoided. To be “extraordinary,” you must be “extra perfect.”
Keep Your Files
Now that you’ve followed all the rules, conducted a flawless auction and sold the items, what should you do with the perfect set of proof and documents you created to reflect your good work? You need to keep those files in a place where they can be accessed in the future. The length of time depends on your state, but a good rule of thumb is no less than four or five years. Some states have six-year statutes of limitations for certain causes of action, so check with your attorney and make sure those files are preserved in case a lawsuit gets filed years later.
A good tip for where to place such files? A self-storage unit! Just don’t default on the payment.
Murphy Klasing has a wide range of appellate, arbitration and trial experience, successfully handling numerous litigation matters. With more than a decade of experience in the self-storage industry, he serves as counsel for Public Storage Inc. in Texas, and has defended matters involving allegations of breach of contract, code violations, employment issues, fraud, negligence, personal injury, premises liability and theft. To reach him, call 713.961.9045; e-mail [email protected]; visit www.wkpz.com.