Frequently Asked Questions - Auctions
We have broken various Frequently Asked Questions into subject categories. You can find these categories below. Each category is structured as a Question & Answer that will take you to more in depth information on a particular topic.
Cut the lock as your first step. That is, as soon as you make the decision that a unit is to go to auction, the first thing to do is to cut the lock. Consider:
- If the unit turns out to be empty, you can put it back into production right away.
- If the unit turns out to contain a motor vehicle or property which might have a lien on it, you can do your necessary background work so the correct notices can be sent out.
- There could be other property in the unit subject to a lien. You have a duty to contact the lienholder at least 10 days prior to the sale. How can you have done that if you do not know what is in the unit, including its model number serial numbers?
- If you discover unusual property, your regular bidders might not be interested. You may have a duty to contact people who might have an interest in such property in order to be able to say that you conducted a “commercially reasonable sale.”
Many, but three stand out:
- Read the law. A.R.S. §33-1704 lays out the required steps to be taken pretty clearly. Read it. A copy is available in your AZSA Resource Book, and on the AZSA website.
- Use the AZSA “Auction Contract” form (AZSA form A001). These inexpensive contract forms are completed by buyers at your auctions as a condition of having the right to bid. They contain all sorts of provisions designed to protect the operator.
- Make deals with your delinquent tenants. Few auctions produce enough dollars to pay the amount that is owed. Thus most auctions are really only about getting the unit back into production. Most operators would therefore be delighted to receive 50% of what is owed if it were paid in cash and the delinquent tenant then moved out right away. It follows then if you are in contact with the tenant, and are down to the wire, i.e., with the sale coming up in a day or two, try offering that deal to the tenant. If accepted, you avoid the risks, and you get the unit back quickly.
No. There is no such requirement in the law. There are both advantages and disadvantages to using one:
Advantages:
- Many professional auctioneers offer lock cutting and unit inventorying as part of their service, which can save you a lot of work. In that event, they are also a 3rd party present with you at the lock cutting, increasing the demonstration that no tampering with contents took place.
- Auctioneers frequently have lists of regular buyers who will come to their auctions, perhaps generating more buyers for you than you might attract on your own.
Disadvantages:
- Auctioneers take a percentage of the sale price as their commission, reducing the amount you collect from your sales.
- Some auctioneers do not employ the AZSA “Auction Contract” form (form A001), removing a layer of liability protection from operators.
Always sell the unit. The law is very detailed and clear as to everyone’ s rights and responsibilities when a unit is successfully sold at auction, but the law is totally silent about what to do when no one wants to buy it. The operator is left in legal limbo. The answer is to always sell it.
Have someone from the your organization present at every sale, and when a request for bids results in silence, have that person bid $1. It is legal to bid at your own auctions, but is discouraged because of the appearance of impropriety. This would be an allowed exception to that rule.
Two things happen when the $1 bid is made: First, you have a guaranteed sale, and the unit can be disposed of as you see fit. Second, frequently when someone bids $1 at the auction, the silent buyers present take a second look, and often someone raises the bid, taking the burden off of you to dispose of the contents.
On the 31st day of delinquency.
The statute, A.R.S. §33-1704(A) says, “If the occupant is default for a period of more than thirty days, the operator may foreclose the lien by selling the property...”That can be read two ways, an aggressive way and a conservative way.
The aggressive interpretation would argue that on day two of a delinquency, you can send out your first auction notice so that promptly on the 31st delinquent day you can stage your sale. The conservative interpretation would argue that “foreclose” means to begin a process of foreclosure that includes the sending of notices, etc., and culminates with a sale. That would mean sending out the first notice, at the earliest, on the 31st delinquent day followed by a sale some 22 days later, for a shortest time-line of 53 days.
AZSA has always advocated taking the conservative approach. Should you ever find yourself in court defending your auction practices, following the conservative approach (or longer) would not be questioned. On the other hand, if you pursue the aggressive approach, it becomes a matter of interpretation whether you were correct or not, and you have to hope the judge agrees with your interpretation. Err on the safe side.
53 days.
You have to read the statute backwards to figure this out. Assuming your tenant resides in the U.S. (You have to add 30 days to everything if they are outside the U.S.), then:
The second letter (by regular, 1st class mail) is required to state the sale date, among other things, which date has to be “not less than fourteen days after the mailing date [of the no-tice].” [A.R.S. §33-1704(B)(2)(c)] 14 days
Earlier in the statute it says to send that second letter “not less than seven days after the mailing of the first notice...” [A.R.S. §33-1704(B)(2)] 21 days
Yet earlier in the statute it says that a storage lien may be foreclosed when the tenant “is in default for a period of more than thirty days...” (See “When is the soonest moment I can send the first auction notice to a delinquent tenant?) More than 30 days is 31 days. [A.R.S. §33-1704(A)] 52 days
Having allowed the preceding the 52 days to elapse, the earliest date on which the sale can then take place is the next day. 53 days
Note: This time-line is set out graphically in the AZSA Resource Book, “Forms” section and on the AZSA web site as the “Self-Storage Sale & Foreclosure MINIMUM TIME SCHEDULE.”
“Verified Mail” is a made-up term especially for our self-storage statute. A.R.S. §33-1701(A)(17) defines it as: “Any method of mailing offered by the United States Postal Service that provides evidence of mailing.” Evidence of mailing, of course, means a receipt, proof that you mailed the notice.
Why doesn’t the statute recite a specific method offered by the USPS? There are currently at least four mailing methods offered by the post office that provide a receipt (plus various other services). The idea was to use a dynamic definition that could change over time to accommodate whatever new methods the post office may introduce.
The old required method of certified mail provides a receipt. The bright green form 3800 that you tore in two, sticking a portion to the envelope, is a receipt. The green card that comes back from the tenant (no longer required) is an extra service. That approach costs, as of the time of this writing, over $5.50.
At the opposite extreme is a “Certificate of Mailing.” It is nothing more than a raw receipt and is much less expensive than certified mail. You can use the Certificate of Mailing forms in the Forms section of this website.
In between the two, the USPS offers a couple of other methods at varying prices depending upon the additional services bundled in the method.
Background on HB2087
The journey to this success began in June of 2023 with the collaboration of Triadvocates, AZSA’s dedicated lobbyist, and the National Self Storage Association (SSA). We listened to your concerns and made it our priority to advocate for this law. A generous grant from the SSA played a crucial role in making this initiative possible.
The bill was passed by a bipartisan vote in the Arizona legislature in April of 2024 and was officially announced at our 2024 Conference. This achievement is a testament to the hard work and strategic planning by Triadvocates’ Barb Meaney, Freddy Soto, and the SSA’s Joe Doherty, who diligently met with legislators to ensure the bill's success.
Key Provisions Liability Cap:
The bill allows the rental agreement to set a limit on the value of the property stored by the occupant, which will be deemed the maximum value for all purposes.
Actual HB Language:
"D. The rental agreement may provide for a limit on the value of the property that is stored by the occupant on the premises, and that limit is deemed to be the maximum value of stored property for all purposes.“
Towing:
If an occupant is in default for more than 30 days and their property includes a vehicle, watercraft, or trailer, the operator may now contract with a towing company to remove the property.
A notice must be sent to the occupant at least 10 days before the towing company removes the property. This notice must include the name, address, and telephone number of the towing company and offer the occupant an opportunity to cure the default.
Once the property is removed by the towing company, the operator is no longer liable to the occupant or any other claimant.
Actual HB Language:
"E. If the personal property includes a vehicle, watercraft, or trailer and the occupant is in default for more than thirty days, the operator may contract with a towing company to remove the property. At least ten days before the towing company removes the property, the operator must send notice by verified mail or email to the occupant at the occupant's last known address. The notice shall provide the name, address, and telephone number of the towing company that will remove the property if the occupant does not cure the default by the date prescribed in the notice. On receipt of the property by the towing company, the operator is not liable to the occupant or any other person who claims an interest in the property.
Next Steps:
To ensure our members are fully prepared to implement these new provisions, we have developed a towing protocol document and a tow company notice template, available for download below. We encourage all members to review these resources to comply with the new requirements effectively.
Press for AZSA Towing Protocol PDF
Press for AZSA Towing Notice Template
We value your continued support and dedication to AZSA. If you have any questions or comments about the new law, please reach out, and we will include responses in an FAQ update bulletin in the coming weeks.
November Lien Law Webinar
Stay informed with the most up-to-date Arizona legal and lien law changes by registering for our November 12, 2024, Lien Law Webinar featuring industry legal expert Jeff Greenberger. This webinar is sponsored by AZSA’s 2024 Turquoise Corporate sponsors.
(a) A statement that the contents of the occupant's leased space are subject to the operator's lien.
(b) A statement of the operator's claim, indicating the charges due on the date of the notice and any other charges that may accrue.
(c) A demand for payment of the charges due within a specified time, not less than fourteen days after the mailing date of the second notice or thirty additional days if the address of the occupant is outside of the continental United States.
(d) A statement that unless the claim is paid within the time stated the contents of the leased space will be sold, or in the case of Protected Property, disposed of, at a specified time and place.
(e) The name, street address and telephone number of the operator, or the operator's designated agent, whom the occupant may contact to respond to the notice.
If the space contains a motor vehicle then there is one more requirement:
(f) A description of the vehicle.
AZSA recommends that both notices contain that information. It’s only logical. What’s more, if you ever find yourself in court defending your auction process, having the first notice contain all the information can’t be faulted, whereas anything less than that might be subject to criticism.
People have property that belongs to others in their storage units all the time. For that reason, the storage lien attaches to “all personal property stored within the leased space.” It does not say, “...to the tenant’s property stored in the leased space.”
Any other approach would make the storage business impossible to conduct. You would need to have the tenant produce proof of ownership of every item being stored, an impossibility.
1. File an eviction suit in court for breach of the lease, assuming some other term of the lease has been violated. This will likely require the use of an attorney and some time.
2. Send the tenant a notice that in a month, his month-to-month lease is not being renewed and that he has to leave by X date. If the tenant fails to leave, then you have the right to use method no. 1, above.
3. Ratchet up the tenant’s rent from month to month. The lease is a month-to-month tenancy that renews each month. You have the right, with notice, to increase the rent. Eventually, it will reach a level the tenant will not want to pay.
The state, A.R.S. 33-1704(B)(4), places a burden on you to notify lienholders of whom you have “actual or constructive knowledge either through the disclosure provision of the rental agreement or through any other written or recorded notice...”
You have no doubt heard the expression, “ignorance of the law is no excuse.” It means that you are deemed to be aware of all the laws that affect you. Likewise, you are deemed to be aware of any lien which you could find out about by checking the public records. The fact that a tenant did not reveal the existence of a lienholder does not let you off the hook.
It really doesn’t matter, however. Unless there is some kind of label or unless the tenant has disclosed the identity of a lienholder in some other state, as a practical matter, the only place you can search is here in Arizona. It is simply impractical – probably impossible – to check all 49 other states as well.
If the property appears to be something the purchase of which might have been financed, do a lien search here in Arizona, and then go on with your sale.
Presumably you contacted the lienholder prior to sale, but he did not appear and act with respect to the stored property. A.R.S. §33-1704(G) sets out the order of distribution of sale proceeds following an auction sale:
1. First dollars go to you to reimburse all of your reasonable costs of sale: e.g., auctioneers’ commissions, postage, lock cutting, etc.
2. The next dollars to prior lienholders up to the amount they having coming, or until you run out of sale proceeds, whichever occurs first.
3. Now you get paid the amount of your unpaid rents and fees.
An example will make the logic of the two sales clear. Suppose the lien on the property is $500. Now suppose you sell the entire contents of the unit in one sale for $500. You would have to give all of the money to the lienholder.
Now suppose you sold the liened property for $200 and the rest for $300. The sale of the liened property only brought in $200. That is the most you would have to give the lienholder. He has no claim as against the other contents. You get to keep that $300.
The fact is that you owe the tax to the state on such sales, so in that sense, yes. On the other hand, the state doesn’t care if you actually charge tax, i.e., collect it as part of the sale. They only care that they get their share. You’re on the hook for it. You have the right to add the cost on and pass it through to the buyer. Whether you do or not is up to you.
The rate is the retail rate, the same as that charged on the sale of padlocks, etc.
Our lien statute, A.R.S. §33-1704(A), simply says sell “at a public sale, for cash.” That does not actually say “auction”; however, another body of laws, the Uniform Commercial Code, puts a burden on anyone foreclosing a lien and selling someone else’s property to conduct a “commercially reasonable sale.”
(See: What is a “commercially reasonable sale”?).
The safest and surest way of achieving that is through an auction with open bidding. (See: Are sealed bid auctions acceptable?)
Unfortunately, there is no magical website that can tell you what the fair market value of everything bought and sold is. If there was, you could sell contents any way you wanted so long as that was the minimum price you collected. As a result, your only alternative is to try to conduct a sale that is engineered so as to try to collect the fair market value. Such a sale is said to be “commercially reasonable.”
An auction is the safest and surest way to do that, provided it is:
• At arm’s length; that is, it has buyers who are not affiliated with you in any way.
• Has many such buyers.
• Is conducted fairly.
• Has buyers interested in buying this particular kind of property. (See: A unit contains unusual contents. Must I do anything differently when selling it?)
• Has competitive bidding. (See: Are sealed bid auctions acceptable?)
Anything short of that leaves you at risk of someday having to explain to a judge why your auction was nevertheless commercially reasonable. (See: Must our sales be by auction?)
Our lien statute now contains a provision that helps protect you:
If five or more bidders who are unrelated to the operator are in attendance at a sale held under this section, the sale and its proceeds are deemed to be commercially reasonable.
[A.R.S. §33-1704(H)]
(See: Is a sale with fewer than 5 buyers not “commercially reasonable”?)
Section 33-1704(H) of our lien statute provides:
If five or more bidders who are unrelated to the operator are in attendance at a sale held under this section, the sale and its proceeds are deemed to be commercially reasonable.
That is simply a presumption, something a court can look at as one test of whether an auction sale was conducted in a “commercially reasonable” manner. (See: What is a "commercially reasonable sale"?)
Sometimes, however, a sale with fewer buyers in attendance may nevertheless be as commercially reasonable as circumstances permit.
Suppose you were selling something unusual, for example a soft drink vending machine, and you telephoned the only three vending machine operators in the region to come and bid. Those three bidders probably constitute the most commercially reasonable market available. There being fewer than five bidders, the presumption that the sale was commercially reasonable is lost, but the argument still exists that the sale nevertheless was commercially reasonable. (See: A unit contains unusual contents. Must I do anything differently when selling it?)
You have a duty to conduct an auction that is “commercially reasonable.” (See: What is a "commercially reasonable sale"?) That means a sale engineered so as to collect the “fair market value” of the contents being sold.
At an auction the theory is that people will bid against one another, raising the bid so long as the price makes sense. Clearly the bidding will stop at some approximation of the true value of the goods being sold.
With sealed bids, the pressure to drive the price up to that value is removed. Such a sale could arguably considered to be not commercially reasonable, leaving you potentially liable for the loss of value. (See: What if a storage sale is not “commercially reasonable”?)
If it could be shown that a storage auction did not meet that standard, then the argument can be made that the property was sold for less than what it was actually worth. If an angry tenant succeeds with such an argument in a lawsuit against you over the sale of the tenant’s property, you could be held liable for the loss of value.
You have a duty when selling a tenant’s property at auction to sell it in a sale that is conducted in a commercially reasonable manner so as to try to collect the fair market value of the goods being sold. (See: What is a “commercially reasonable sale”?)
Buyers at self-storage auctions will typically buy literally anything if the price is low enough. Therefore, regardless of the number of bidders present, the sale conditions could not necessarily be expected to generate some approximation of the fair market value of the contents.
For example, suppose a sale unit was found to contain a printing press.
They typical buyers at a self-storage auction may bid on the press, but the bidding will likely be low as they calculate to themselves what opportunities they may have to resell the press, presumably at its market value.
On the other hand, if a bunch of printing companies were bidding against each other, clearly the bids would be expected to go higher, as they are considering the end value of the press to themselves.
Obviously, the second scenario represents the market value of the printing press.
If property is sold under conditions that are not commercially reasonable, you could end up liable to the tenant for the loss of realized value. (See: What if a storage sale is not “commercially reasonable”?)
Although the storage lien statute contains a provision that says that a sale with five or more bidders unrelated to the seller will be deemed commercially reasonable (A.R.S. §33-1704(H)), this has not been tested in court. It would therefore be prudent when selling unusual contents to try to engineer the best selling circumstances possible.
Your right to a lien and thus to auction requires a lease:
The operator of a self-service storage facility has a possessory lien from the date the rent is unpaid and due on all personal property stored within the leased space... [A.R.S. §33-1703(A)]
If the occupant is in default for a period of more than thirty days, the operator may foreclose the lien by selling the property stored in the leased space at a public sale, for cash, or if the property is protected property, by disposing of the property pursuant to this section. [A.R.S. §33-1704(A)]
The key words in both of those grants of rights are “leased space”:
“Leased space” means the storage space or spaces at the self-service storage facility that are rented to an occupant pursuant to a rental agreement. [A.R.S. §33-1701(A)(6)]
“Rental agreement” means any written agreement provided to the occupant that establishes or modifies the terms, conditions or rules concerning the use and occupancy of leased space at a self-service storage facility. [A.R.S. §33-1701(A)(14)]
Therefore, no lease = no right to auction.
Legally, the best action to take is to go to court and seek an order of eviction. That probably requires the use of an attorney, costs money and takes time, but it presents little or no exposure to liability to the contents’ property owner for the loss or disposition of the property.
Some operators will take a measured risk and sell the contents at auction anyway. While they expose themselves to liability to the contents’ owner for conducting a sale they had no right to conduct, the exposure is seen as small if:
1) The apparent value of the contents is low. (It is a good idea to take lots of pictures of the contents so you can prove their marginal value later if you are sued.) In effect, “So what if I get sued over property that was only worth $100-200?”
and/or
2) There has been no contact with the contents’ owner for a long time, so the argument can be made that the contents were abandoned. Obviously, the longer the non-contact the better.
Therefore, never allow a tenant to move into a unit with a promise to sign a lease a later time.
If the tenant has provided you with an email address, either in their move-in information or in a subsequent written notice of change of address, you may use that to send a required auction pre-sale notice. (See: “Is sending a notice by email enough?”)
Note, only the first pre-sale notice, i.e., the one that would otherwise be sent by certificate of mailing, may be sent by email. The second notice that is sent 7 or more days later by regular mail must still be sent by regular mail.
The law allows electronic messages to be sent in a variety of ways. Essentially any communication between two computers would satisfy the requirement if all the required content is present (see: “What information should be contained in the first pre-auction notice?”) AND proper receipt confirmation is received (see: “What constitutes a ‘confirmation of receipt’?”).
This is allowed in order to accommodate advances in technology. At this writing, text messages and even postings to social websites would qualify if the above two conditions are met.
• A receipt generated by the recipient’s email software in response to a request for receipt sent by your email software.
• An email or letter back from the tenant arguing or discussing the content of the notice would clearly indicate that the tenant had received the notice.
• An angry telephone call from the tenant, if tape recorded, arguing about or discussing the sale also demonstrates that the tenant had to have received the notice.