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May 1, 2007

9 Min Read

Most states have a statute allowing operators to place liens against tenants property and to sell stored goods to satisfy the storage bill (lien). Still, the sale of a tenants property is the last and worst option for a number of reasons. Mostly, the sale process is technical and its easy to make a mistake, especially because some operators are not patient enough to sell goods properly. Truth be told, nothing in this industry gives rise to more claims against insurance and litigation than wrongful sale cases.

Operators do have other optionssuch as agreed terminations or evictionbut lets assume you need to go ahead with a sale. How should you proceed?

Gut Instincts

As an airplane descends under 10,000 feet, pilots must make a series of checks and cross-checks for safety. Its the same with a self-storage sale. I call this the gut check. If, during your crosschecks you encounter something not quite right, or it still burns in your gut, then take heed! Dont put the unit up for sale, but start the process over where the failure occurred and continue forward as needed. Never force the sale.

Let me share a story about a client of mine who sold a unit a few years ago. He had previously performed a software conversion and got into trouble because there were two Mrs. Smiths in the system. For some reason, Mrs. Smith A ended up credited with Mrs. Smith Bs payments. Hence, the system noted Mrs. Smith A was prepaid for six months and Mrs. Smith B was six months delinquent.

My client sent all the necessary notices, ran the advertisements as required by the statute and sold Mrs. Smith Bs unit. Mrs. Smith B, who was about 80 years old, came in one day looking for her property. The manager bristled, Mrs. Smith, we sold your property to satisfy our self-storage lien because you were over six months delinquent to us. Heres proof we certified mailed you and advertised the sale according to state laws, etc. Unfortunately, you lost your property because of your unwillingness to pay.

Mrs. Smith then presented six cancelled checks for the period of time in question. Thats when the manager started to feel sick. Not long after, he sought legal counsel.

When I later asked Mrs. Smith later why she never responded to any of my clients communication attempts, she said, I had my cancelled checks and I knew the manager would figure out the mistake.

My client was able to settle with Mrs. Smith, but the moral of the story is: If you cant believe old Mrs. Smith would let her worldly possessions be sold, then perhaps you should give pause before selling the unit.

Check, Please

While every state has unique sale requirements, all have a checklist a manager should follow and fill out when any tenant starts to go delinquent. This document will become the final balance sheet to decide whether or not a unit should go to sale. Dont forget to formulate timing based on your state statute and your operations. Some of the early obvious steps are calling the tenant, writing down the number called, whom you spoke to, what was said, if a message was left and who made the call.

All employees should be asked if theyve heard anything about or recently seen the delinquent tenant. Check obituaries too. If you have a gate or alarm log, identify the last time somebody went into that unit. Document all these statistics for comparison and balancing as you close in on a sale date.

Although you may start this process with many tenants, many will pay at some point during the process. You may only have one or two units in question by months or quarters end, but at default time you need to reflect if theres been a change of address, whether anyone has mentioned anything about a move and recall the tenants movein conditions. Did the tenant mention he was between houses? Divorcing and moving into an apartment? Any clues at all?

You should check for the Smith effect, comparing occupied units versus unpaid rents to ensure rent payments werent credited to an unoccupied unit and no one is listed as prepaid that shouldnt be.

Check with the alternate contacts and emergency contacts listed on the lease, but also research the original address of the tenant. With the Internet, its easy to identify the owner of that address. If its a rental property, call the landlord to see if the tenant is also behind in rent or may have moved. If the tenant stored a vehicle, review the insurance information. Call an insurance agent to see if he knows the renters whereabouts.

Lock and Doc

If your state allows locks to be cut for inventory, make sure you have a detailed procedure for documenting the lock cut. Once its cut, youre potentially more liable for alleged missing property if the tenant makes payment in full. Create a lock-cutting policy and follow it, documenting on videotape who was present, how the lock was cut, and proof of condition and items in the unit. Also, look for clues while in the unit: If you find a whole houseful of possessionsas opposed to just clothes and sports equipmentyour tenant is more likely on the move.

Make sure all delinquency notices include Forwarding and Address Correction Requested on the front of the envelope. Order them preprinted. If the tenant moved and submitted a forwarding address with the post office, your mail will come back with those yellow stickers and a new address. Yes, youll have to pay the postage but its a small price compared to a wrongful lawsuit.

Always refer to your statute for what needs documentation and follow all steps accordingly. Some steps can be technical; for example, you may be required to send delinquency notification via certified mail and retain the certified mail return receipt. Some statutes dictate the number of days from mailing to the countdown toward sale; others count from the date of delivery. Also, make sure your letters comply with the statute as well.

Next, set up a system for calculating the number of days between the notice and sale, informing employees of the protocol. Many statutes require you make demand for payment within 10 or 14 days of mailing or delivery but that a fixed sale date (which may not be less than x number of days from the advertising date) is included. Its easy to make mistakes counting backward so double check your dates. To be safe, calculate days to meet or exceed state requirements.

Audit Time

Within a few weeks of sale, its time to substantially audit the file. Double check everything has been mailed to the best last-known address, look for changes of address in the file and computer, check for any alternate persons to contact. By this time, you should have sent notices to the tenant, alternate persons and emergency contacts. Are these notices coming back undeliverable or have they been received? Have there been any responses? This should all be documented for your final review before you authorize a sale. If the emergency contact has called and said your tenant is in Iraq, youll probably think twice about authorizing a sale.

If your statute requires notice in a newspaper, run ads on the specified dates. If your statute requires notices to be posted in a newspaper of general circulation and you choose the Penny-saver to save money, youre probably violating the law and maybe held liable.

The ad should be cut out, placed in the file with a copy mailed to the tenant. If there are any problems with insertion, if the ad is cut off or doesnt meet statutory requirements, stop, re-serve the notice and start this process again.

Several days before the sale, you or your highest ranked manager should be intimately involved with the file. Recheck for any legal notices or other letters received from the customer or any other person or entity regarding the unit. Do a last review for any notice of a legal proceeding that would prohibit the auction such as a bankruptcy or a restraining order. Look at the call log and determine if anyonetenant or otherwisecalled about this unit. Have there been e-mails?

As a gut check, does the tenant have other units not delinquent at your facility? Have you misapplied a payment? Have all addresses been crossed check against any information in the computer or any other data? Have you checked for all methods of possible payment on the account? If you have a lockbox, post office box or a drop slot, check to make sure the payment or a partial payment was not made last minute. Further, if you accept payment by auto deposit from a bank or over the Internet, monitor the account up to the last second before the auction. Finally, make sure you are complying with your statute regarding the use of an auctioneer if it is required.

The Big Day

The day of the sale, re-review to make sure you have not missed a deadline, a partial payment or anything else that may put your right to sell this unit in any question whatsoever. Do not be afraid to stop the sale because of address problems; pending legal action; unresolved damage to the unit or contents; if the value of the contents of the unit are much greater than what you are owed; concerns over your inability to contact the customer; a partial payment; a voluntary agreement to vacate; a subsidized payment from a religious or other interest group; any question regarding the validity of the service of your certified mail; or any other question. Review the checklist that you have prepared from the beginning of default until the day of sale.

Ive seen many cases where people claim that you should have known of their address change because it was on the outside of a payment envelope one time or they claim they dropped written notice down your payment drop slot. Whether you received it or not, remember youre selling someones personal property. It means little to you, but may mean so much more to them. Make sure you can back up everything you do leading up to the sale.

As a rule of thumb, check, recheck and check again. Always proceed carefully and cautiously. If at any time your gut says something is wrong, listen to it, back up and start over until everything is as neat as a pin. 

Jeffrey Greenberger practices with the law firm of Katz, Greenberger & Norton LLP in Cincinnati. He primarily represents owners and operators of commercial real estate, including self-storage. This column is for the purpose of providing general legal insight into the self-storage field and should not be substituted for the advice of your own attorney. Mr. Greenberger is the legal counsel for the Ohio Self Storage Owners Society and the Kentucky Self Storage Association. His new website, www.selfstoragelegal.com, contains his legal opinions and insights into the self-storage industry, as well as an article archive. For more information, call 513.721.5151; e-mail [email protected]

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