Holding an on-site or online auction when a storage tenant has not paid their rent over a period of time is nothing new, but addictive television series’ like Storage Wars have brought more attention to the practice than ever before. In this series, and others like it, people bid to acquire ownership of an unpaid storage unit’s contents, without knowing what items reside inside (to date, the biggest Storage Wars payday went to a man who spent a mere $3,600 on the contents of a unit, to find that it housed a slew of paintings by artist Frank Gutierrez, valued at around $300,000). So, what do you need to know when holding an unpaid storage unit auction? In this blog, we look at how storage unit auctions work, storage unit auction laws and rules, and more.
Auctioning Off Unpaid Storage Units
Storage unit auctions look like a lot of fun on television, but for self storage owners and operators, they’re typically the last resort after a tenant ignores payment requests or simply “disappears.” So when can a storage unit be auctioned off? At a certain point, the self-storage company has the right to sell the contents of the unit in a public auction to the highest bidder. Otherwise, they’re simply housing someone’s items for free (and losing out on re-renting the space to someone else).
Of course, there are specific laws in every state regarding how to go about selling storage unit contents (they are called lien laws and they vary from state to state). This may include notice requirements, ad placements, the actual process and regulations during the auction, and more. It’s important to understand self storage lien laws and follow the requirements and procedures meticulously to avoid any legal complications. Having a detailed, written set of storage unit auction rules will protect you from potential litigation in two main ways:
- It prevents former tenants whose goods were sold from claiming you failed to follow proper lien-sale procedures.
- It prevents lawsuits filed by buyers who claim your auction was unfair or inappropriately handled.
When Can a Storage Unit Be Auctioned Off?
Holding an auction is sometimes a self storage facility’s only legal means of removing a delinquent tenant’s property from a storage unit. So when can you actually hold an auction? In most states, tenants have 30-90 days past due to pay in full in order to avoid their unit being auctioned off. Storage tenants should typically be sent a pre-lien notice prior to an auction letting them know that their unit has become delinquent enough to be auctioned (make sure you have proof of mailing via certificate of mailing or certified mail). This notification should also outline the details for when the unit went into “lien” status.
If the tenant still does not pay or make arrangements to pay, the facility should send a final notice giving them one more chance to pay any outstanding rent and late fees, followed by a lien sale notice (again, use a certificate of mailing or certified mail to cover yourself). The lien sale notice usually should include:
- An itemized statement of the storage facility’s financial claim
- A description of the property within the unit (if available)
- A demand of payment within a specified time
- A statement that the property will be sold through a public auction if the delinquent tenant doesn’t pay
- Details of the auction, including date, time, on-site location, or online website
If the tenant still does not comply, the facility can then advertise and publish the auction sale. You may be wondering, can I simply email delinquent tenants? Some states allow notification to be sent via email while others require a physical mailing. In addition, some states require sending lien notices to both the tenant and an alternate contact with a different mailing address in case there is a problem with delivery.
On-site and Online Storage Unit Auction Laws & Rules
So how do you keep your nose clean? While individual state laws vary, here’s an overview of things to do and expect before, during, and after the unpaid storage unit auction.
Before the Self Storage Unit Auction Begins
Before the unpaid storage unit auction begins, you’ll want to define the rules and all disclaimers to avoid legal trouble down the road. A few things you’ll want to specify:
- Whether bidders can only place offers on all of the contents of the unit or individual items within a unit.
- Payment procedures, minimum bids, sales tax rules, and the time period allowed for clearing out the contents.
- Whether bidders can inspect the unit or just look at the contents from the doorway if the auction is held on-site.
Be sure that each bidder signs a copy of the written rules (in person or by digital means) and have the auctioneer run through them before the auction begins. Additionally, if the auction is held on property, it’s a good idea that your rules include an indemnity clause for any potential injury or damage a bidder may cause. If a bidder does something on the premises that results in a lawsuit, you want to be indemnified by that bidder, who hopefully has insurance. An attorney can help you draft up these rules.
During the Self Storage Unit Auction
It varies by state, but some require that self storage owners use a licensed auctioneer when selling off unpaid storage units. In the past, sales had to be held at the facility, and the storage unit door had to be opened for the bidders to get a look at the items inside the storage unit. Today, however, many states such as California, Florida, Texas, Washington, and Montana now allow online auctions which can be a much more efficient means of auctioning an unpaid storage unit’s contents.
Whether on-site or online, an auction typically begins when a minimum bid is placed. Then, other bidders will throw their hat into the ring, raising the stakes until the value of the unit has reached a price that no one wants to bid beyond.
Ultimately, the highest bidder wins the auction and pays the amount they bid for the unit’s contents. It’s important to remember that, until the gavel falls, the tenant has the ability to stop the auction and save their belongings (for online auctions, they have until the self storage property receives payment).
Once payment is settled in person or online immediately after the auction has concluded, the winning bidder is given a set window of time to remove the contents of the unit (usually 24-48 hours). Generally, storage facilities will allow the winning bidder extra time to fully clean and move out of the space per an agreement.
After the Self Storage Unit Auction
You might think all is settled following an auction, but then in comes the delinquent tenant ready to pay up. Of course, he or she will likely be upset that their items were sold and might bring about a potential lawsuit. While self-storage facilities do have the right to legally sell a delinquent tenant’s personal properties at auction, that doesn’t mean the tenant will take too kindly to it. So, it’s important that all your t’s are crossed and i’s are dotted. Having proof that you notified the tenant about their delinquency, and then sent a lien sale notice, will help protect you from potential litigation. Of course, each state has different lien laws, procedures, and requirements regarding storage unit auctions, so it’s always a good idea to consult your state’s local Self Storage Association.
Always Check Current Laws Regarding Unpaid Storage Unit Auctions
Before holding an auction, you should always check the most current laws, and self storage lien laws, as they frequently change. For example, some states require a licensed auctioneer during the auction sale and others are exempt. Another example is that some states require that if the auction generates more money than what the delinquent tenant owes, the extra cash must be given to the tenant. Many of these laws further stipulate that if the tenant is unreachable, the extra money should then be turned over to the municipality’s unclaimed property division.
By checking the most current laws, following notification procedures, and keeping a clearly defined set of rules, you can unload the contents of an unpaid storage unit just like the guys on Storage Wars!
Please note, this blog does not serve as legal advice. As a self storage owner (or tenant) you should understand the laws unique to your state. Storelocal members can also reach out to our partner Storage Treasures to learn more about holding an auction. Not a Storelocal member? Join today!
