Virtually all U.S. states now give self-storage operators the statutory right to sell delinquent tenants’ stored property at public sale without the need for a court hearing. This right of non-judicial sale is a unique attribute of the storage business and a powerful tool to collect owed rent and recover rentable space. Nevertheless, lien foreclosure comes with a tremendous responsibility, as the laws are extremely technical and require strict adherence.
All required notices must be sent properly, following all time-period requirements for demand, notice, publication and sale. Failure to comply with any of those stipulations exposes you to significant liability. These days, there’s also the coronavirus health crisis to consider, with some areas limiting self-storage operators’ rights in regard to lien sales. As you can see, the lien process can often be stressful and even confusing for facility operators and their staff.
Create a Timeline
If you’re looking to sell a delinquent tenant’s property, you must understand and properly follow your state’s lien statute. One way to avoid a wrongful sale is to create a sound foreclosure timeline that sketches out which steps to take and when. A good timeline simplifies the process by summarizing each step, from the day rent is due through the day of the sale. It should include when to charge late fees, deny unit access, send lien notices, run advertisements and, ultimately, conduct the auction. This simple tool can help you ensure compliance with requirements and avoid common pitfalls that occur during the lien process.
To lessen the stress, add extra time to each of the time periods imposed by your state and adhere to those expanded timeframes. Your potential liability increases whenever you sell a tenant’s property. By increasing the number of days from the statutory minimum, you can decrease the possibility of a bad sale and limit your risk.
For example, your self-storage lien law may state the auction can’t occur until at least 15 days after the first advertisement announcing the sale. While you could legally conduct the sale at day 15, a better approach would be to add a few extra days and conduct the sale closer to 21 or more days after the first ad is posted.
Another example relates to the demand period, or the number of days the tenant has to pay you after he receives a lien notice. Generally, after that period expires, the self-storage operator runs an advertisement for the sale. If your statute requires a demand period of at least 14 days from the notice mailing date, give the tenant at least 17 days before placing your ad. Giving him more time lessens the likelihood of a timing error that could lead to a wrongful sale.
Be Patient and Conservative
While it’s understandable to want to move the foreclosure process along as quickly as possible, the best approach is to be conservative. Efforts to reduce the lien process to the shortest time allowed by law can be risky. You’re in business to rent units, not sell property. Lien sales should be viewed as the last resort, so take your time getting to the final step. Operators who take a cautious approach and give the tenant extra time will face an easier situation in court if a wrongful-sale claim occurs.
Another reason to be patient is to prepare for contingencies that may occur during the process. For example, some states now allow lien notices to be delivered to tenants via e-mail; however, if you don’t receive a delivery confirmation using that method, you must send the notice by verified mail. If you don’t build in time for this, you could end up running the sale ad before the lien notice has been properly sent to the tenant. A smart approach is set the advertisement to run far enough in advance that you have time to use verified mail if necessary.
While you may be eager to address non-paying tenants, remind yourself that lien sales are one of your greatest liability risks. In the end, the best lien sale is no sale at all. When in doubt, don’t sell. If you do need to sell a tenant’s property, the best tool in your arsenal is a complete lien-process timeline. Ensure all procedures are followed properly and give yourself extra time to conduct them.
Ashley Oblinger is an attorney in the Atlanta law firm of Weissmann Zucker Euster Morochnik & Garber, P.C., where he specializes in business and self-storage law, advising operators nationwide on all legal matters, including lease preparation, lien enforcement, tenant issues, tenant-claims defense, and employment policies. To reach him, call 404.760.7434; e-mail [email protected].