Conducting a Self-Storage Lien Sale Is Like Swimming Through Shark-Infested Water … Here’s How to Survive It!

For some reason, I keep seeing social media reels of large sharks in various ocean settings. Maybe it’s because the Internet somehow knows I’m terrified of sharks, or maybe it’s because I keep watching them. What fascinates me is how the water in these videos often looks so clear, blue and inviting; you can’t help but think about jumping in and relaxing. Then suddenly a large Great White appears within feet of a small boat or surfer. This is when I remember why I prefer swimming pools.

It’s a great analogy for a self-storage lien sale (admittedly, an overly dramatic one). This legal remedy seems so appealing because it allows facility operators to bypass the judicial process and strict requirements that apply in other contexts, like confiscating a car or other personal property. It allows you to reclaim your storage unit from a tenant who can’t or won’t pay their bill and return it to money-making status. But there are sharks in the water! In fact, there’s a whole family of them, as you’ll read below.

We never want to take for granted the gift that the self-storage industry has in the lien-sale remedy. Courts view our ability to foreclose and sell personal property without a judicial order as an “extraordinary” resolution. As such, we must take extraordinary care to do it right.

Related:Lewiston, ID, Self-Storage Owner Sues City for Negligence After Reservoir Rupture

Baby Shark

(Sorry if I’ve put that song in your head. Truly.) The first “shark” you must get past before conducting a self-storage lien sale is your state’s statutory rules, particularly in regard to timing. When can you start the process that ends with selling a unit? Everything begins with the tenant’s failure to pay rent, followed by the first lien notice. States vary, but most require that the notice contain the same basic information:

Also, check who must receive the notification. In Nevada, for example, you must send it to the tenant and the alternate address they provided on their rental agreement, if any, at least 14 days prior to sale. It’s imperative that you know your state’s requirements for the notice itself and that the format tracks the language of the law.

Remember, failure to pay self-storage rent is the first key. You can’t auction a tenant’s items if you want to terminate their lease for reasons other than failure to make payments.

Related:Employee Theft in the Self-Storage Workplace: Factors, Prevention, Detection and Response

Mommy Shark

The next shark in your wake is the one that dictates how your notices should be sent. Many states now allow for email transmission of the self-storage lien or sale letter. Some require that the tenant agree to this mode of communication in the rental agreement. Others mandate verified mail, and some still expect notices to be sent via Certified Mail. Make sure you do it the right way! Here are some tips:

Notice is key (it might be two sharks). Self-storage tenants who claim that a lien sale was performed improperly regularly allege that they didn’t receive any notification. Make sure that’s something you can immediately disprove. Double-check the address(es), spelling of the names, the form you’re supposed to use, and the timing of the notice itself.

Here’s one more bite to avoid: Some states require that if you don’t receive a delivery confirmation of the email you sent to the tenant, then you must also send the notice via verified mail. Swim carefully in these waters.

Related:California Law AB 1916 to Help Self-Storage Operators Deal With Evicted Tenants, Amend Rental Agreements

Daddy Shark

Now the sharks are getting bigger. The next one you need to survive is the advertisement for the self-storage lien sale itself. Make sure you follow whatever state requirements exist for the format, timing and content of this ad. It must state the sale time and date and whether it’s online or at a specific self-storage location. Some states are changing the rules on this because newspapers aren’t exactly a growth industry. Nevertheless, a requirement is a requirement. You might need to publish the ad for X days or X consecutive weeks prior to the auction, so follow the rules.

Also, I know that newspapers charge by the word, and you might be tempted to minimize the number you use in your self-storage lien-sale ad. Some states require that the goods being sold be described “generally,” while others want descriptions that are more “particular.” You need to adhere to the letter of the law in your jurisdiction so there’s no way to challenge the publication itself.

When a person is challenging the validity of a self-storage lien sale in court, scoring a 90% on following the directions is still a fail. To seize and sell someone’s personal property without a judicial order, we must score 100%!

Grandma Shark

Here she is, the mega shark. And here’s how to survive her: Never move forward with a self-storage lien sale if there are any red flags, no matter how small, or any other reason not to proceed.

I recently got a call from a self-storage manager who was about to conduct a lien sale. He wanted to know, “Do I have to allow my tenant to pay the outstanding balance on auction day? I haven’t started the auction, and he brought cash. However, this tenant has been horrible to my staff. He called them names and yelled at them. I just want the unit sold so he’ll no longer be an issue.” My answer was, “Yes, you have to allow him to pay, but you don’t have to put up with a verbally abusive customer. Take his money and stop the auction, but simultaneously hand him a termination letter. If he doesn’t leave by the date specified in the notice (as per the terms of the lease), then we will evict him.”

Every self-storage operator has had tenants who regularly pay late or barely avoid auction by paying at the last minute. It can be aggravating. We forget that, in most cases, the lease is month-to-month and can be terminated without cause. If you don’t wish to keep the tenant as a customer, pursue termination, even eviction, not a lien sale.

Here’s another potential danger: Most states require that an auction be commercially reasonable, which generally means that you must have at least three bidders present (in person or online). They must be people who aren’t related to and have no controlling or common interest with the self-storage operator or any other bidder. If these criteria aren’t met at the time of the auction, you need to stop the sale and reset the process.

Also, know your state’s post-sale laws. You may be required to send another notice after the auction. For example, if the unit sold for more than the outstanding debt, you’ll likely have to notify the tenant or escheat the money to the treasurer of your state. Double-check these issues because they always have timing requirements.

If auction day arrives and you realize that any of your lien-sale notices were wrong, publications weren’t timely or there’s any other hiccup that would allow the self-storage tenant to challenge the process, stop the auction and reset the timeline. Failure to do so is just throwing chum in the water.

No More Sharks

At the end of the day, you’re in the self-storage business, not the auction business. Lien sales typically don’t produce enough proceeds to cover the outstanding debt. Plus, your business runs best when you have happy tenants who pay rent on time. When that’s happening, you’re standing safely on the shore instead of waist deep in water with circling sharks.

In every lien-sale scenario, do what you can to work things out with the tenant. If it makes sense to accept partial rent to allow them to move out, that’s nearly always a safer option. If your tenant says, “Just sell the unit. I can’t pay and don’t want the stuff anymore,” that’s great, but get it in writing. Have them express that sentiment in an email or signed document that states something like, “I hereby release all of my personal items in unit X to [Self-Storage Company] and release [Self-Storage Company] from all liability for the disposition, sale or discarding of my personal property.” An agreement between the parties to dispose of items is a shark-killer.

Liens sales are unavoidable for most self-storage operators. However, you can take extra measures to protect your business from a dangerous situation. Follow your state laws, triple-check your process, and consult with your attorney if you have doubts or questions. Otherwise, prepare to meet Jaws.

Murphy Klasing is a partner with Weycer, Kaplan, Pulaski & Zuber P.C. He 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 Oklahoma and 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; email [email protected].