Selling personal property from a self-storage unit is one thing, but what happens when there is titled property, such as motorcycles, trailers, boats, vehicles, RVs, and other recreational vehicles either in a unit without your knowledge or stored as part of your boat/RV storage plan?
Lien sales are complicated, even for personal property, but they become even more complicated and even overly cumbersome in some states when the property is titled.
“Unfortunately, notwithstanding the potential financial benefits that can be obtained with the higher rental rates for boats and RVs, the cost of default is higher,” says Scott Zucker, partner with Weissmann Zucker Morochnik & Garber P.C., an attorney experienced in the self-storage industry in Atlanta, Ga. “For example, whereas typical self-storage property can be sold simply with a notice and some advertisements, since RVs and boats are titled property, that is property that must be registered with the government and carry with it a document of ownership.”
While the self-storage industry has been given special consideration, and personal property can be sold without a judgment being entered by the courts, a boat, RV, or any other titled property cannot be sold at a public auction without satisfying the transfer of title requirement.
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“We’ve never sold an actual good boat or RV on our site,” says Peter Allen, president of Lockerfox in Cornelius, N.C. “Most titled property that goes to auction are pieces of junk; people who have an actual asset usually won’t go to auction.”
Zucker generally agrees. If there is an asset an owner/operator of a self-storage facility thinks is worth a lot of money, they should consider that a huge red flag that something else may be going on, such as the possibility the tenant has become critically ill or has died. “It is certainly worth further investigating,” says Zucker.
But remember: When auctioning any property, the storage owner/operator assumes a contingent liability for that property. “Statutes need to be followed strictly,” says Zucker. “There is potential significant liability when operators don’t follow the law if there is a clear-cut violation.”
The easiest way to mitigate that liability, says Travis Morrow, president of National Self Storage in Tucson, Ariz., is to not go through with the auction. After all collection procedures are followed, storage operators in 30 states are allowed to simply call a tow company to have the vehicle towed. “This really is the preferred method,” says Morrow. It’s hard enough dealing with the DMV, but to try to get the replacement title and transfer is very difficult and time consuming. It’s really worth the $250 to have it towed and get the space back rather than deal with the brain damage that goes with selling it.”
Morrow goes on to say that if you have a vehicle that is worth a lot of money, such as a $100,000 RV or a classic car, it may be worth your while to allow the vehicle to sit without rent for as long as possible. “Although you’re not getting cash in the bank, the more they owe, the more money you will have when the tenant pays,” says Morrow. “You have the opportunity to extend the collection on it.”
However, if you decide not to extend the collection time or tow, you certainly have the right to auction to collect the money that’s owed in rent. “If the vehicle is in reasonable condition, it will typically get dollar for dollar for what it’s worth,” says Morrow.
If you decide to take titled property to auction, Zucker says you must follow these steps, keeping in mind that the rules and requirements for auctions in every state are different and you should always be aware of your particular state statutes:
- The storage owner must first attempt to notify the vehicle owner by certified mail that the vehicle will be deemed abandoned within 30 days.
- At the same time, the storage operator must request in writing from the appropriate state department, which is either the DMV or the DNR (Department of Natural Resources in some states for boats and certain other watercraft), a printout of all possible owners and lienholders of the vehicle. You must have the Vehicle Identification Number (VIN), which should have been obtained at the time the tenant rented the space by having had them provide a copy of the title. Even if the copy of the title you have lists no lienholders, you should check to make sure. Morrow also recommends conducting a UCC (Uniform Commercial Code) search. Some state self-storage associations, such as Arizona, have created a form that makes this process easier, but not all states have done this. What’s more, Morrow cautions that some states add an extra step in requiring someone from the state to come and inspect the vehicle.
- If the tenant doesn’t respond within 30 days after notice of abandonment, the storage operator must send a separate written demand of payment to the vehicle owner by certified mail. Zucker says the second notice is to make a demand upon the vehicle owner for the payment of the storage fees, which should be itemized in the letter.
- If there is no response to that letter within 10 days of that notice, the storage operator can then file an application, either with the governmental agency or the local court, to obtain a replacement title on the abandoned vehicle. Additionally, the storage operator must provide the agency or court a printout from the DMV or DNR of all lienholders. In some cases, the process may not be as cumbersome. “The transfer of the title can be easy if the tenant, or owner of the property, voluntarily agrees to sign the title over to the high bidder at an auction,” Zucker says. “It is not so easy when the owner of the property cannot be located and the title must be transferred through legal means.”
- All owners and potential owners of the vehicle are then notified of the application for abandonment. “A lienholder will typically come to claim the vehicle,” says Zucker. “Some storage operators have said, ‘You can’t have it back,’ but operators have to understand they have to give it back to the lienholder. As an operator, you still have the right to seek collection of rent through the court or through credit reporting.”
- If no objection is filed by the tenant or lienholder to notice of abandonment, Zucker says the agency or court will then confirm the application for abandonment and you can proceed with the regular foreclosure letters and advertisements that are required by your state prior to a lien sale.
- At the sale, the purchaser of the property can be provided with a certified copy of the court order allowing the sale of the new title as issued by the DMV or DNR. Zucker also reminds operators that, as with lien sales for personal property in storage, the proceeds of the sale that exceed the tenant’s debt should be paid to the tenant. If the tenant cannot be located, the proceeds must either be turned over to the state or held for the statutory length of time.
- Note that many states have additional regulations, including California, Illinois, and North Carolina. Zucker emphasizes that the storage operator must know all the regulations of the state in which the property is stored to help reduce the owner’s liability when selling titled property.