Under Minnesota law, there are multiple instances where liens can attach to a borrower’s livestock or crops that will result in priority over a financial institution’s first-in-time perfected security interest in the same livestock (Minn. Stat. § 514.966) or crops (Minn. Stat. § 514.94). These types of liens are often referred to as “hidden” liens because they arise automatically once the service is provided without any notice. Understanding how hidden liens can attach, how they are perfected, and when they take priority is important for agricultural lenders to properly assess any credit risk.
The hidden liens that can attach to livestock include: (1) veterinarian liens; (2) breeder liens; (3) livestock production input liens; (4) temporary livestock production input liens; and (5) feeder liens. There are also several hidden liens that can attach to crops such as: (1) landlord liens; (2) harvester’s liens; and (3) crop production input liens.
Hidden Liens on Livestock.
The purpose of the hidden liens are to protect those who provide essential services for livestock and crops. For example, veterinarians, breeders, and feeders are automatically granted a secured interest in all animals serviced. Depending on the service provided, the veterinarian, breeder, or feeder has between 60-180 days from the last date of service to perfect their secured interest by filing a financing statement in accordance with the Uniform Commercial Code (UCC). Once perfected, the secured interests of a veterinarian, breeder, and feeder will take priority over a lender’s secured interest in the very same livestock regardless of when the lender’s interest attached and regardless of whether the lender perfected its interest. However, the liens are limited to the value of the services provided.
Hidden Liens on Crops.
Similarly, a landlord’s lien and a harvester’s lien automatically attach to the crops grown on the leased property or to the crops serviced by the harvester. Such harvester services include combining, picking, harvesting, hauling, baling, drying, or storing crops. Like the livestock liens, the harvester lien is in the amount of the value of the services provided, and the landlord’s lien is for the amount of unpaid rent. After the liens attach, a landlord has 30 days to perfect, and a harvester has 15 days from the last date of service to perfect. Once perfected, the secured interests of the landlord and harvester take priority over a lender’s secured interest in the very same crops regardless of when the lender’s interest attached and regardless of whether the lender perfected its interest.
Production Input Liens: An Important Distinction.
While liens such as the veterinarian, breeder, feeder, landlord, and harvester liens automatically take priority once perfected, production input liens function differently. For livestock and crop production input liens, lenders can preserve priority—but only by taking prompt and proper action upon receiving notice.
A supplier furnishing livestock production inputs—such as feed or labor—has a lien for the unpaid retail cost of those inputs. The lien attaches when the inputs are furnished and may not exceed the greater of the livestock’s fair market value or purchase price. The supplier can perfect its interest by filing a financing statement within 6 months after the last input was furnished.
Now, unlike the veterinarian’s lien, breeder’s lien, and feeder’s lien, a livestock production input lien does not automatically take priority over the lender’s lien once perfected. Instead, if the lender has a secured interest in the livestock being raised by the input supplier, the supplier must notify the lender of their livestock production input lien by delivering via certified mail or other verifiable method a lien-notification statement. Minnesota law requires that the envelope be marked as: “IMPORTANT – LEGAL NOTICE.” If a lender receives this notice, it must respond within 10 days to preserve the lender’s priority.
In the lender’s response, it may either (1) agree to issue the supplier a letter of commitment for the amount stated in the lien-notification statement or (2) refuse to issue a letter of commitment. The lender’s response must be written and mailed to the supplier. If the lender provides a written response extending a letter of commitment, then the supplier cannot obtain a lien for the amount of the letter of commitment. If the lender refuses to extend a letter of commitment, then the lender’s and the supplier’s rights are not affected, and the lender retains its superior position. However, if the lender fails to respond to the lien-notification statement within 10 days, the perfected livestock production input lien has priority over any security interest the lender may have in the same livestock or their proceeds. The supplier’s priority can only be for the lessor of the amount stated in the lien-notification statement or the unpaid retail cost of the livestock production input identified in the lien-notification statement. Note, if the lender does respond to the lien-notification statement and retains its current position, any subsequent value given to the debtor will be second in priority to the supplier holding a perfected livestock production input lien.
Generally, a lender will preserve their rights by promptly responding within 10 days, but there is one exception. If the borrower has filed a mediation request under Minn. Stat. Ch. 583, then a supplier who furnishes inputs for livestock production during the 45 days following the date of the mediation request shall have a temporary livestock production input lien. If a lender receives a notice of a temporary livestock production input lien, then the lender is not required to deliver a written response. The supplier of a temporary production input lien automatically obtains priority on the livestock it provided inputs during the 45-day period following the debtor’s mediation request. However, after the 45-day period, then the lien attaches as a standard livestock production input lien as detailed above. Note, if the lender is not certain about whether the notice is for a temporary production input lien, best practices dictate that the lender provide a written response as described above.
Finally, a supplier furnishing crop production inputs, which includes agricultural chemicals, seeds, petroleum products, the custom application of agricultural chemicals and seeds, and labor, has a lien for the unpaid retail cost of the crop production inputs. A crop production input lien attaches when the inputs are furnished by the supplier, and it attaches to the crops serviced. This lien can be perfected by filing a financing statement within 6 months of the date the last production input was furnished. Similar to the livestock production input lien, a crop production input lien does not automatically take priority over a lender’s validly perfected security interest in the same crops. The supplier must provide the lender with a lien-notification statement as described above, and the lender has 10 days to respond in writing to maintain its first priority position.
Compliance and Best Practices.
Suppliers of crop and livestock inputs must strictly comply with the Minnesota Statute requirements when providing lenders notice of their production input liens. A lien-notification statement that does not meet Minnesota’s formal requirements—such as not marking the envelope with “IMPORTANT – LEGAL NOTICE”—may be invalid and prevent the supplier from obtaining priority even if the lender does not respond timely. Therefore, lenders should:
- Retain the original envelope containing any lien- notification statement.
- Promptly respond in writing within 10 days to all production input lien notices.
- Understand that any subsequent advances made to the borrower after a perfected production input lien is filed will be subordinate to that lien.
A good working understanding of these “hidden” liens is key to protecting the lender’s secured position and the lender generally.
