From The MSM Archives: The Legal Landscape: Buying Back At Auction By Jeffrey Greenberger

Posted by MiniCo on Sep 19, 2013 12:00:00 AM

From The MSM Archives: The Legal Landscape: Buying Back At Auction By Jeffrey Greenberger


How do I stop a boyfriend or girlfriend from coming to a sale to buy back their significant other’s property? I have an occupant who wants me to auction his property off now, because he thinks he is going to have his girlfriend buy it back for less than what he owes. How do you prevent something like this?


The first question is whether or not you want to prevent something like this from happening. It is always best to avoid the sale, if possible. Make certain your emotions are not getting in the way of good business sense, because at the end of the day, you want your unit back to rent to a paying occupant. If the occupant has the idea that his girlfriend will buy the unit back, consider whether or not it is in your best interest to just allow that buy-back to happen privately, without a sale. The fact that you turn the unit for less than the amount owed does not necessarily mean that you have to write off the balance—you can send that person to collection.

Why do I advocate that it is always in your best interest, if possible, to get the unit back without a sale? Because, when you sell, you are setting yourself up for liability. The statute in your state, if you have one, is loaded with terms that you may not recognize as requirements; it may be too late when you realize that you have done just one thing wrong and that you have given the former occupant the opportunity to sue you.

The best way to avoid a lawsuit is to end up with the occupant getting their property back, whether it be for full value or not. If you can stomach giving the occupant their property back for less than full value, it is really hard for the occupant to claim that you have caused them damages (This is how you end up with a lawsuit; remember: damages must be demonstrated.), if the occupant ends up with their property back.

If the occupant gets their property back for less than full value, then the occupant should not be able to file a lawsuit for a wrongful sale. This is the case if you have done everything properly and avoided the kind of things that give rise to a lawsuit, such as missing property, emotional damages, sentimental items lost, etc. That being said, if you do not want to follow this advice and you want to avoid having the occupant’s friend or family member show up and bid at the sale, in most states, you may bid on the property.

Make sure you have a solid set of lien sale rules that are pre-written, handed out, and signed by every buyer before they come onto the property. If you are going to bid on sales yourself, it needs to be stated in the rules; if there are going to be minimum bids, that also needs to be stated. But remember, you are defeating yourself if you start with a minimum bid on the unit for the amount owed; because, if you win, you really did not recoup any of your money and the idea of turning the debt over to collection on speculation that you may someday collect it, is a bit penny wise and pound foolish.

There is a lot to be said for getting the most you possibly can out of an auction or lien sale and just having the difference left over and sent to collection. It is money in hand, rather than money in the bush. Furthermore, you can always have sale rules stating that the operator may instruct employees to bid. You can even have instructions that change the bid if the employees are suspicious that someone (a family member or friend) is bidding on the unit. For example, many of my clients state in their policies and procedures that a representative of management may bid up to X-percent of the amount owed before they must stop; and then, if there is a higher bid, that higher bid wins. Thus, you recover some of your money, minimizing your actual out-of-pocket damages.

What percentage your employees may bid is up to you. I recommend that it be applied consistently to all lien sales, because to do otherwise may expose you to some emotion that you do not want getting in the way of a commercially reasonable and proper sale of the occupant’s goods. If it were my facility, and I found an occupant or their boyfriend or girlfriend bidding, I would stop the sale, ask them how much money they have in their pocket, sell them the unit for that amount of money, and pull the unit from the sale. However, how you operate is your choice.

The way to stop the sale to a boyfriend or girlfriend is to have a good set of written sale rules and a minimum bid that makes it impossible for someone to buy without paying the full amount due. While that is the answer, I want to emphasize that we consider this to be a poor choice of action for the operation of your business and for mitigating your damages from unpaid rent.

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