Items in Auction Unit Could Belong to Another Creditor with a Perfected Security Interest!

“A perfected security interest is a security interest that has been publicly registered or otherwise established in a way that gives the creditor priority over other creditors who may also have an interest in the same collateral. This means that the creditor with the perfected security interest has the right to take possession of the collateral if the debtor defaults on their obligations”.

When conducting an inventory of items in a self-storage auction unit, you may notice an item that already has a lien on it. For example, a car is a straightforward case, but it can also apply to other items, like a refrigerator or a couch, that have identifiable markings. These markings indicate that the item may belong to a company and could have a perfected security interest associated with it.

How Do You Look Up a Possible Perfected Security Interest

“To look up perfected security interests, you typically use the Uniform Commercial Code (UCC) filing system in the state where the collateral is located. You would enter the customer’s name or their business name into the system”.

For example, if you find a couch with a ‘Rent-A-Center’ tag on it, using the UCC filing system, you type in the customer’s name, and it shows a perfected security interest with Rent-A-Center.  You would then contact Rent-A-Center directly and inform them that you are in possession of their couch.

I experienced a similar situation in Northern California, where I was unsure which Rent-A-Center location had the information. I called the local store, and they informed me that they didn’t have the record but could help me search for it in Sacramento. They successfully found the information, which allowed the local branch to retrieve their item.

Who’s Going to Pay the Storage Fees?

You will inform the company or creditor what the customer owes and that they are in lien status. Sometimes the company will say it’s not worth paying the balance due and coming to pick up the item, while at other times, they will agree to do so.

If they decide to pay the amount owed, they will come to pick up the item. After that, you may have a unit still filled with other items, so you would go through the regular auction process for those remaining items.

In some cases, I’ve had to start over because the company paid the debt in full.

Most of the items I encountered in these situations were cars, toolboxes, refrigerators, and large appliances. Recently, we came across a large industrial refrigerator, and I advised checking for a perfected security interest on it.

This seems to be a significant issue; many people might not realize they are supposed to check for a perfected security interest. Sometimes, individuals are not capable of doing it themselves, and I think this is an underappreciated issue in the storage industry that managers and owners often overlook.