It’s been more than six years since Storage Wars, a reality television show
that follows self-storage auction buyers, first aired. For better or worse, the
show threw the lien sales of California storage facilities into the spotlight,
and its popularity resulted in several spinoffs and copy-cat shows over the
years. Storage Wars spurred an uptick
in bidders at self-storage lien sales across the country and brought about the
creation of several self-storage auction websites.
Similar to the California Gold Rush,
Americans were enticed by the possibility of uncovering valuable items within
self-storage units. Their enthusiasm to win units led to bidding wars and
above-average lien sale proceeds. Moreover, in some instances, proceeds from
the auctioned units have exceeded the amount due to the storage operators by
the former tenants.
While this fervor has waned somewhat
in the past few years, there are still infrequent occasions when self-storage
operators must manage a surplus of proceeds following a lien sale. And,
considering the litigious nature of lien sales in general, it is imperative
that storage owners and operators adhere to their state’s self-storage statute
before, during, and after a lien sale.
Keep Track More so than any other aspect of the self-storage business, storage operators must ensure that the state law has been followed to a T when conducting lien sales. With the ever-present threat of wrongful sale lawsuits, there is absolutely no room for error.
Even though it is unusual for units to sell for more than is owed, Ashley
Oblinger, associate attorney at Atlanta, Ga.-based Weissmann Zucker Euster Morochnik P.C., advises
operators to keep thorough accounts of lien sales. “Keep good records,” he
says, adding that operators should remember to factor the auction fees into the
amount owed. “Having clear and concise records helps should a tenant come back
after a lien sale.”
Operators are urged to record any
costs accrued throughout the lien sale process in order to seek compensation
for those expenses. Some of the typical expenses include newspaper
advertisements, lock removal fees, postage fees for certified or registered
letters, auctioneer fees, and late payment fees. “Every operator can charge
those fees to the tenant,” says Jim Grant, president of selfstorageauction.com
and founder of StorageBattles.com, who adds that those expenses could be
substantial considering that newspaper ads can cost hundreds of dollars,
especially in states that require storage operators to run multiple
advertisements prior to a sale.
Stick To The Statute According to Jeffrey Greenberger, partner at Cincinnati, Ohio-based
Greenberger & Brewer, LLP, what operators are to do with the surplus is
“super state specific”, varying between doing everything to return it to the
former tenant and simply holding it until it’s claimed.
“Operators must understand by statute
what is to be done with the excess,” says Greenberger, “and follow those
Unfortunately, not every state
provides in-depth guidance for self-storage operators on the matter. For
instance, Alaska doesn’t have a self-storage statute and New York’s fails to
mention how to handle excess proceeds.
“There is nothing in New York’s
self-storage act about it,” Oblinger says. For that reason, the law firm of Weissmann Zucker Euster
Morochnik P.C. instructs its New York clients to look at the state’s unclaimed
property statute for direction. “Most states have some mechanism in place for
excess revenue,” he adds.
Oblinger also mentions that Florida
requires self-storage operators to send a post-sale notice of the surplus to
the former tenant either in person or via certified mail. Then there’s Ohio and
Michigan, both of which require that the actual excess proceeds be sent to the
former tenant’s last known address via certified mail. Should the certified
letter be returned to the operator, he/she must either follow the unclaimed
property provision or submit the surplus to the state after the prescribed hold
period has passed. The hold period is two years in Ohio; after which, the
surplus is considered unclaimed funds.
As for New Jersey, storage operators
must place the excess proceeds into an interest-bearing account and provide
notice of the funds to the former tenant. Nevertheless, the money is to be
submitted to the State as unclaimed property if it remains unclaimed for more
than three years.
Texas also requires operators to send
a written notice of the surplus to the former tenant. After notice is given,
the former tenant has two years to claim the funds. However, the storage
operator is permitted to keep the excess proceeds if the former tenant does not
claim the money within those two years.
According to Oblinger, Florida and
Alabama also allow operators to keep any unclaimed funds. While operators in
Florida must hold the money for two years, those in Alabama must hold it for
In Missouri, there is a special
affidavit requirement for the excess proceeds of self-storage lien sales.
Operators are to hold the surplus for a year, but the former tenant must sign
an affidavit that states that no other lien holders exist in order to claim the
Although many state statutes have hold
periods of one year or longer, Pennsylvania and Arizona have shorter ones. Pennsylvania
requires operators to hold the surplus for only six months. If the former
tenant does not claim the money within that timeframe, it’s to be submitted to
the secretary of revenue. In Arizona, the operator must hold the excess
proceeds for only 90 days; any unclaimed funds are paid to the state’s
department of revenue. However, unlike Pennsylvania, Arizona’s department of
revenue provides former tenants with an additional two years (after receiving
the funds from the storage operator) to claim the money before it is given to
the either the state or county.
In addition, while most unclaimed
funds are submitted to the state, California and Nevada are two exceptions.
Operators in those states are required to retain the surplus for one year; if
left unclaimed, the money is given to the county in which the facility is
Virginia’s self-storage statute is
another oddity. According to Greenberger, the amount in which operators can
collect to “satisfy a lien” depends on whether or not the sold unit was climate
controlled. They can get up to $250 for a non-climate-controlled unit or up to
$500 for a climate-controlled unit.
Regardless of the state in which your
facility is located, Oblinger reminds self-storage operators to keep records
from the sale. “They are subject to audit by the department of treasury,” he
Lien Priorities As Grant notes, the average loss recovery for self-storage liens in the United States is only 50 percent. Considering that merely half of what is owed is collected, it’s likely that many storage operators may never need to deal with excess proceeds from a lien sale.
Nevertheless, it is crucial for
operators to understand lien priority. “The self-storage lien is superior to
most other liens,” says Greenberger, “but a title lien is superior to
For this reason, both Greenberger and
Grant suggest that operators avoid selling vehicles via a lien sale. “It’s not
a good idea to sell vehicles,” Greenberger notes. “Operators must understand
which lien is superior and what happens to the inferior lien.”
To give clarity to the conundrum,
Richard Marmor, legal and legislative chair of the Arizona Self-Storage
Association, explains that liens have chronological priority unless there is a
title lien. In Arizona, for instance, the lien sale proceeds first cover the
costs of the act of foreclosure except when a title lien exists.
Aside from title liens, Grant reminds
storage operators that they cannot auction off units belonging to deployed
military personnel or anyone in bankruptcy. He also urges operators to look at
each scenario on a case-by-case basis as some tenants who are terminally ill or
going through economic hardships may be able to afford an arranged payment
When In Doubt When it comes to lien sales—whether before, during, or after a sale—it is always better to err on the side of caution.
“Know the law,” says Oblinger, “and
follow the statute.”
And, if you don’t know or understand
your state’s self-storage statute, be sure to seek expert legal advice for
appropriate guidance. The last thing any storage owner or operator needs is a
disgruntled former tenant with the means to file a lawsuit that could push your
business into the red and drag your name through the mud.
Erica Shatzer is the editor of Mini-Storage Messenger, Self-Storage Now!, and Self-Storage Canada.