What If the Contents Are Owned by Others? Mortgaged to Others? Or Stolen?
by TSSA Legal Counsel

Can a Chapter 59 foreclosure sale by a self-service storage facility cut off ownership rights of the tenant whose contents are in the storage unit? Can ownership rights be cut off if the items being sold are owned by persons other than the tenant and the tenant had lawful possession of the property at the time of storage? Can community property ownership rights of a spouse who didn’t sign the rental agreement be cut off by a Chapter 59 foreclosure sale? Can ownership rights be cut off if the items being sold are stolen? Can lien rights of a seller or lender be cut off if their lien was recorded with the Texas Secretary of State or the Texas Department of Motor Vehicles (TDMV) or the Texas Parks and Wildlife Department (TPWD) before the property was stored under a self-service storage facility rental agreement containing a Chapter 59 lien? These are tough questions, and the answers are not always clear, so let's look at some scenarios.

On the basis of the foregoing, legal counsel for TSSA has reached the following conclusions and makes the following recommendations to TSSA members:

1. If a foreclosure sale is held by a self-service storage facility under Chapter 59 and if the purchaser had no reason to believe that the property being sold is mortgaged or owned by others, such purchaser acquires title free and clear of all third-party ownership and lien claims—even if:

• the property is community or separate property of a spouse who did not sign the rental agreement;
• the property is owned by a third party (friend, relative, business customer, etc.);
• the property is being stored by the tenant as a bailee for the true owner;
• the property is stored in the self-service storage facility by a non-tenant, without the tenant’s knowledge;
• the property is a motor vehicle, provided the procedures of Section 59.0445 have been followed;
• the property is a motorboat, provided the procedures of Section 59.0445 have been followed;
• the property is a vessel, provided the procedures of Section 59.0445 have been followed; or
• the property is an outboard motor, provided the procedures of Section 59.0445 have been followed.

The facility owner has no duty to investigate or determine whether property is stolen. For example, the owner might discover it was stolen when the owner obtains from TDMV or TPWD the names and addresses of the registered owner and lienholders of a motor vehicle, motorboat, vessel or outboard motor. Or the owner might simply be told by a law enforcement officer that it was stolen.

The law is not clear on whether a self-service facility foreclosure sale would convey title to stolen property that was: (1) found in the unit; (2) not known by the facility to be stolen at the time of foreclosure; and (3) bought by a good faith purchaser for value. Nonetheless, TSSA legal counsel believes that such a sale conveys good title to stolen property if: 1) the property was a motor vehicle, motorboat, vessel or outboard motor registered with TDMV or TPWD; 2) the owner or lienholder of the property received verified mail notice that his property was in the possession of a self-service storage facility; 3) the notice stated that the property was being sold for non-payment of charges by the tenant in whose space it was stored; and 4) the notice stated the time, date and place of sale.

TSSA legal counsel also believes that a self-service storage facility foreclosure sale of stolen property not registered with TDMV or TPWD probably conveys title to a good faith purchaser for value; but no case authorities have decided the issue.

2. At all times prior to a foreclosure sale by a self-service storage facility under Chapter 59, the facility’s lien for unpaid charges is superior to the lien of any prior lienholder and superior to the ownership rights of any third-party owner of the property. Therefore, when law enforcement authorities demand that the self-service storage facility turn over stolen property to the rightful owner or to law enforcement authorities, it is TSSA legal counsel’s opinion that:

• the self-service storage facility can legally refuse to allow the law enforcement officer to open or inspect the property unless he has a search warrant;
• self-service storage facility personnel should not try to forcibly interfere with a law enforcement officer who decides to break the lock and enter and/or remove the property without a search warrant; and
• the self-service storage facility may lawfully foreclose on the contents of the unit for any unpaid charges—even if the facility has been informed by a law enforcement officer, a lienholder or the true owner of stolen property that the property is not owned by the self-service storage tenant or that the property is subject to a prior lien. Of course, pre-sale notice to owners and lienholders as required under Section 59.0445 applies to motor vehicles, motorboats, vessels and outboard motors.

3. The remedy for lienholders and true owners of property who discover that their property or collateral is stored in the self-service storage facility is to:

• convince the facility that they are the true owner or lienholder of the property being stored; that they did not transfer their title or lien to the tenant; that they will sign an affidavit of their ownership or lien (see sample TSSA form “Affidavit and Indemnification Agreement of Non-Tenant Who Claims Ownership or Lien of Vehicle, Trailer, Boat or Outboard Motor” on TSSA form L-5); that they will indemnify the facility for any lawsuit or damages arising from turning over the property to them; and that the facility should therefore turn the property over to them; OR
• obtain a court order to recover the property, subject to their obligation to pay the self-service storage facility for any unpaid charges due on the unit; OR
• pay the accrued unpaid storage charges and redeem the property prior to foreclosure under Section 59.0445 if the property is a motor vehicle, motorboat, vessel or outboard motor; OR
• show up and be the highest bidder on the property when the self-service storage facility forecloses on the contents. The rightful owner or lienholder of the property can then get a judge to impound any excess proceeds and return them to the rightful owner or lienholder, who may have ended up having to bid more than what was owed by the tenant to the facility owner or lienholder (which very seldom happens).

The latter three procedures eliminate proof-of-ownership problems and the risk that the facility owner would be sued if they turned the property over to persons wrongfully claiming to be the owner or lienholder.

Additional Advice from TSSA Legal Counsel

1. Don’t let law enforcement authorities bully you into opening a storage unit without showing you a search warrant. They will sometimes try to threaten you, but they legally cannot force you to open a unit without a search warrant and they cannot charge you with any crime or put you in jail for refusing to open a unit without a search warrant.

2. If law enforcement authorities have a search warrant and if they try to remove property they deem to be stolen or property on which a lender or seller has a lien, you could consider objecting orally to such removal and following up with a letter to the law enforcement agency insisting that none of the contents should have been seized without your being paid.

3. What if the property is stolen? Occasionally, motor vehicles, motorboats or outboard motors discovered in a storage unit are indeed stolen. In that event, you absolutely need to report it to the local law enforcement agency as directed by TDMV or TPWD. Chapter 59 does not preclude a self-service storage facility lien from attaching to property owned by third parties who are not tenants on the rental agreement—unlike Section 54.042 of the Property Code, which specifically exempts any third-party-owned property and lienholders from the residential landlord’s lien. TSSA legal counsel has been unable to find any case law that definitively states whether or not the Chapter 59 lien is valid against stolen property. (However, a 2020 Amarillo Court of Appeals decision involved a claim of conversion against an owner/lessor of a storage facility by the owner of a Jeep, who alleged it had been stolen by a self-storage tenant and then subsequently sold at a public auction by the owner/lessor due to the tenant’s failure to pay rent on the storage unit. Fortenberry v. Birkenfeld, 2020 WL 1146710 (Tex. App.—Amarillo 2020). The trial court entered a directed verdict in favor of the owner/lessor. The Court of Appeals affirmed the trial court’s decision based on the Jeep owner’s failure to present the necessary evidence on appeal. The issue of the validity of the lien itself was not addressed by the Court of Appeals.). As such, that issue does not seem to have been decided yet by the courts.

Of course, if the property is stolen and no charges are due to the facility by the tenant, there is no problem in allowing an officer with a search warrant to remove or allow the true owner or lienholder to remove the stolen property. See TSSA legal counsel’s article on “What if Police or Other Governmental Officials Want Information or Access?” behind the “Legal Articles” tab in this Goldbook©. It is suggested that you photograph any removed property, keep a photocopy of the search warrant, and make a record of the date of the removal, along with the name and badge number of the law enforcement officer.

 

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