Thanks to basic cable, storage auctions seem to be the rage of American society these days. But with widespread exposure comes widespread misinterpretation, and attendees at your next auction may not understand the nature of a lien sale or the laws under which storage facilities operate. Facility owners have widely varying (and often unwritten) guidelines or company policies they follow for auctions. On top of that, the lien laws they’re required to obey differ from state to state. Newcomers to the world of storage auctions, including newer members of your staff, must become familiar with these laws and how they could be misinterpreted, or run the risk of being held liable for an improperly conducted auction.
Wayne Blair, auctioneer at Blair Auction & Appraisal, has been in the storage auction business for more than 12 years. Thanks to the growing popularity of auctions and contracts with local auctioneers, he is able to help storage facilities with their auctions in 13 states and counting. Blair stresses that many people, storage operator and customer alike, don’t realize the main function of a storage auction is to recoup lost costs from a delinquent tenant.
Most storage facilities don’t expect profits from a storage auction. Gains from the winning bid are meant to pay off the rent owed, and if there’s anything left over, many states require the facility owner give that money to the delinquent tenant. Of course, in some cases, the tenant might be completely unreachable. Check your state lien laws on how to proceed; a few states allow the facility to keep the money if they cannot contact the tenant within a full year. In some cases, as in Blair’s home state of Michigan, the leftover cash belongs to the state.
“Some [storage owners] think that once the tenant becomes delinquent, the [content of the unit] belongs to them. That isn’t true,” Blair said.
Hunting down the M.I.A. tenant.
The first requirement before planning an auction is to attempt contacting the tenant by any and all available means. A letter demanding payment on the rent within a set timeline (as indicated by state lien law) should be mailed to the tenant. While common law dictates that facilities put out a newspaper ad for two consecutive weeks prior to the auction, legislation is changing as media trends alter the methods and accessibility of communication. For instance, many states now allow the auction notice to be published on the facility’s website.
While advertising an auction is a good way to increase public awareness of your facility, its primary function should be to contact the tenant. The ad should list the date and time of the auction and a simple, general description of the unit’s contents.
State requirements vary when it comes to the time frame within which the tenant must pay off his or her rent. This period can be as short as 30 days or as long as 90 days. Furthermore, the tenant will usually have to owe a specific past-due amount in order to legally continue with the auction.
Getting the details right.
As we’re talking, Blair asks me to call back in half an hour. His workers have found a car with a bad vehicle ID number in their storage unit. Before he goes through with the auction, he’ll need to do an extensive lead check on the car to ensure it actually belongs to the tenant. In case anything goes wrong, he has a $2 million liability policy.
Even with such extensive coverage, Blair’s company ensures that each potential facility client complies with all lien laws imposed by the state. While the auctioneer obviously can’t dictate in-house rules at any self-storage facility, Blair recommends owners establish a workable company policy that is both compliant with state law and easy for anyone to understand. Getting a handle on the fluid nature of lien law can be difficult, so Blair suggests that new facility operators seek out their state self-storage association to network with experienced owners about common policies and concerns.
After all is said and done, storage auctions are necessary to maintain the flow of business. Blair recalls working with a storage facility that refused to hold auctions, years ago. After 60 delinquent tenants and multiple bank loans, the company finally went under.
“The storage facilities just want to be able to pay their bills,” Blair said.