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BLOG: Ag Input Creditors Beware Certified Mail From The Nebraska Secretary Of State

Posted on Monday, November 20, 2017 at 12:32 PM by Brad Holbrook

An associate recently asked me a question relative to an agricultural input lien and a debtor’s ability to unilaterally seek the assistance of the Nebraska Secretary of State (SOS) to terminate the same.  I told him, poppycock, no such procedure exists.  Alas, I was wrong.  He presented me with Nebraska Uniform Commercial Code Section 9-513A (link).  After reading the statute, I was shocked to learn that not only does a debtor have the ability to get the SOS to file a termination statement, but if in fact the SOS files such a termination statement, the creditor’s remedies are considerably narrow.

As you may recall, non-consensual agricultural input liens are most commonly perfected by the filing of a UCC-1, which is commonly referenced as a Financing Statement.   A link to a more thorough discussion on agricultural liens and perfection published in the Nebraska Lawyer will fill you in on the rest in case you are rusty on the topic.  In any event, a Termination Statement basically terminates the perfection of the security interest, however it arises.  A creditor is statutorily obligated to end its security interest and its perfection by filing a Termination Statement upon payment of the underlying debt giving rise to the security interest.  The purpose of this obligation is that the debtor’s livelihood is impacted by what appears and what does not appear at the SOS when potential lenders and vendors are doing their due diligence on whether to get involved with a potential borrower/debtor.  Up until the enactment of Section 9-513A, only the creditor could file a termination statement.  That is no longer the case.

Under Section 9-513A, a debtor can file an affidavit with the SOS that he or she or it (the statute applies to entities as well) is listed as a debtor on a Financing Statement which was NOT filed by a financial institution or an agricultural input supplier and the Financing Statement was filed by a person who was not entitled to file the Financing Statement.  For purposes of this specific statute, an agricultural input supplier is defined as a person who is regularly in the business of extending credit to agricultural producers.  {This definition appears narrower than the definition of an agricultural lien appearing in all other sections of Article 9 so the impact of the distinction is currently unknown}.  If the affidavit is filed, the SOS then MAY make a determination that a Termination Statement should be filed.  If the SOS makes that determination, it will immediately file the Termination Statement and send notice via certified mail to the creditor.  The Termination Statement is effective within 30 days of its filing.  Upon receipt of the notice, the creditor has a mere 20 days to institute a legal proceeding, in which the sole issue is whether or not the creditor filer was or was not entitled to file the Financing Statement. This sentence is very important because it does NOT allow the creditor to challenge whether or not the creditor is or is not a financial lender or an agricultural input supplier.  Although the statute is clear that an affidavit may not be filed against a financial lender or an agricultural input supplier, there is nothing within the statute to ensure that the creditor who filed the Financing Statement is in fact something other than a financial institution or an agricultural input supplier. 

In this context, I would advise anyone selling goods or services to anyone involved in a Farming Operation who receives certified mail service (or any notice for that matter) from the SOS in which a purported Termination Statement has been filed, to contact counsel immediately.  Whether the same was requested by a less than honest debtor who affirmed that your Financing Statement was not filed by an agricultural input lender or the SOS’s inability (and any statutory safeguards requiring the SOS to so ensure) to confirm that you are not an agricultural input supplier, the effect is the same in that the Termination Statement will be effective within 30 days.  Once effective, the priority rules are impacted and the Legislature implicitly noted that could occur because the statute also provides for protection for a Buyer in the Ordinary Course who may become involved with the debtor between the filing of the Termination Statement and any reinstatement of the Financing Statement should you be successful in challenging the Termination Statement. 

There are certainly more questions that could be addressed in analyzing this statute which is certainly beyond the scope of this friendly reminder.  The objective of my writing is to advise those with boots on the ground of the existence of Section 9-513A and to stress the importance of immediate attention to your postman bearing certified mail.

Posted in: Agriculture, Business, Litigation, Wills, Trusts and Estate Planning
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