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The Potential Impact of Statutory Liens on Livestock Operations Image

The Potential Impact of Statutory Liens on Livestock Operations

Posted by: Christopher E. Bowler

A “lien” is a type of property right that allows a person (the “lienholder”) to take possession of certain property belonging to a debtor if an underlying debt is not paid.  Some liens, such as mortgages and security interests, are voluntary and are created by contracts.  Other liens are involuntary and are created by operation of the law when certain debts are not paid.  When multiple liens encumber the same property, a lienholder’s priority to the property is typically determined by the time at which the lienholder “perfects” its lien.

In Minnesota, there are various types of these “statutory liens” important to the agricultural sector, including landlord’s liens, harvester’s liens, crop production input liens, veterinarian’s liens, breeder’s liens, livestock production input liens, and feeder’s liens.  The aspects of each of these liens, including how they are created and how they are perfected, are outlined below.

  1. Landlord’s Lien.
    1. How it can be created: Minnesota law provides that “[a] person leasing real property for agricultural production has a lien for unpaid rent on the crops produced on the real property in the crop year that is the subject of the lease.” In other words, a landlord renting cropland to a farmer can obtain a lien on the crops grown on the landlord’s land if the farmer does not pay rent.
    2. How it is perfected: A landlord’s lien becomes perfected if a document called a “financing statement” (or “UCC-1”) is filed with the Minnesota Secretary of State’s office within 30 days of the time at which the crops subject to the lien become growing crops.  Importantly, a landlord’s lien, once perfected, obtains priority over all (including prior, perfected) liens on the crops.
  1. Harvester’s Lien.
    1. How it can be created: Minnesota law provides that “[a] person providing [harvesting] services in the ordinary course of business has a lien upon the crops [harvested] for the reasonable amount and kind of service provided.”  A harvester’s lien becomes effective at the time the harvester provides the harvesting services
    2. How it is perfected: A harvester’s lien becomes perfected if a financing statement is filed with the Minnesota Secretary of State’s office within 15 days of the last day on which harvesting services are provided to the individual against whom the lien is asserted.
  1. Crop Production Input Lien.
    1. How it can be created: Minnesota law provides that “[a] supplier furnishing crop production inputs in the ordinary course of business has an agricultural lien for the unpaid retail cost of the crop production inputs.”  “Crop production inputs” include things like agricultural chemicals, seeds, and petroleum products.  The lien is on the crops produced with aid from the crop production inputs and becomes effective when the inputs are provided by the supplier.
    2. How it is perfected: A crop production input lien becomes perfected if a financing statement is filed with the Minnesota Secretary of State’s office within 6 months of the last day that the crop production inputs are provided.  A crop production input lien can obtain priority over a lender’s prior, perfected security interest in the crops if (a) the supplier provides a specific notice of the lien to the lender and (b) the lender does not appropriately respond to the notice within 10 days of the notice.  The supplier’s notice must (i) be delivered by certified mail or another deliverable method in an envelope marked “IMPORTANT – LEGAL NOTICE”; (ii) disclose the name and address of the lender to receive the notice and the name and address of the supplier claiming the lien; (iii) contain a description and the date(s) of the transaction and the retail cost(s) of the crop production input; and (iv) state the names and addresses of the person to whom the crop production input was furnished and the owner of the crops.  Minnesota law requires strict compliance with these notice provisions.
  1. Veterinarian’s Lien.
    1. How it can be created: Minnesota law provides that “[a] licensed veterinarian performing emergency veterinary services in the ordinary course of business that cost more than $25 for animals at the request of the owner or a person in possession of the animals has a lien on the animals for the value of the services.”  A veterinarian’s lien becomes effective when the veterinarian’s services are provided.
    2. How it is perfected: A veterinarian’s lien becomes perfected if a financing statement is filed with the Minnesota Secretary of State’s office within 180 days after the last day that the veterinarian provides the emergency veterinary services.  Importantly, a perfected veterinarian’s lien has priority over all other liens on the same animals (including prior, perfected security interests).
  1. Breeder’s Lien.
    1. How it can be created: Minnesota law provides that “[t]he owner of any livestock used for breeding services in the ordinary course of business, or any provider, in the ordinary course of business, of semen or ova used in . . . artificial means of impregnating livestock, has a lien upon the livestock bred and any resulting offspring for the price or value of the service provided.”  The breeder’s lien becomes effective at the time the breeder’s services are provided.
    2. How it is perfected: A breeder’s lien becomes perfected if a financing statement is filed with the Minnesota Secretary of State’s office within 6 months after the last day that the breeder provides breeding services.  Importantly, a perfected breeder’s lien has priority over all other liens on the livestock (including prior, perfected security interests), except for perfected feeder’s liens (which are discussed below) and perfected veterinarian’s liens (which are discussed above).
  1. Livestock Production Input Lien.
    1. How it can be created: Similar to a crop production input lien, Minnesota law provides that “[a] supplier furnishing livestock production inputs in the ordinary course of business has a livestock production input lien for the unpaid retail cost of the livestock production input.”  “Livestock production inputs” include feed and labor used to raise livestock.  The lien is on the livestock produced with aid from the livestock production inputs and becomes effective when the inputs are provided by the supplier.
    2. How it is perfected: A livestock production input lien becomes perfected if a financing statement is filed with the Minnesota Secretary of State’s office within 6 months of the last day that the livestock production inputs are provided.  A livestock production input lien can obtain priority over a lender’s prior, perfected security interest in the livestock if (a) the supplier provides a specific notice of the lien to the lender and (b) the lender does not appropriately respond to the notice within 10 days.  The supplier’s notice must (i) be delivered by certified mail or another deliverable method in an envelope marked “IMPORTANT – LEGAL NOTICE”; (ii) disclose the name and address of the lender to receive the notice and the name and address of the supplier claiming the lien; (iii) contain a description and the date(s) of the transaction and the retail cost(s) of the livestock production input; (iv) state the name and address of the person to whom the livestock production input was furnished, the location where the livestock will be raised, and a description of the livestock; and (v) state that the products and proceeds of the livestock are covered by the livestock input lien.  As with the notice required under the crop production input lien, Minnesota law requires strict compliance with these notice provisions.
  1. Feeder’s Lien.
    1. How it can be created: Minnesota law provides that “A person has a feeder’s lien on livestock if the person (1) stores, cares for, or contributes to the keeping, feeding, pasturing, or other care of livestock, including medical or surgical treatment and shoeing, and (2) does so in the ordinary course of business, at the request of the owner or legal possessor of the livestock.”  A feeder’s lien is a lien on the livestock cared for, is for the value of the services provided, and becomes effective when the services are provided.
    2. How it is perfected: A feeder’s lien becomes perfected if a financing statement is filed with the Minnesota Secretary of State’s office within 60 days of the last date that feeding services are provided.  Importantly, a perfected feeder’s lien, once perfected, obtains priority over all (including prior, perfected) liens on the livestock except for perfected veterinarian’s liens.

If any of the above liens are created, it becomes a powerful tool that can be used to collect payment for the underlying goods supplied or services rendered.  That is, the lien can be “foreclosed” through a legal proceeding, the property subject to the lien can be forcibly liquidated, and the lienholder can obtain the proceeds from the liquidation.  Moreover, some of the above liens, as previously noted, can take priority over priorly perfected liens, including security interests.  For these reasons, it is important to be mindful of various liens that could impact your operation, regardless of whether you are a farmer, landlord, supplier, or someone providing agricultural services to another’s farm operation.

Action Items:

  1. Assess whether you are in a position to be affected by one of the above liens. If you farm or provide farming services in a state other than Minnesota, the laws of your state may also provide for liens similar to those discussed above.
  2. If you are a farmer against whom one of the above liens may be claimed, be sure to provide prompt payment to landlords, suppliers, and those providing services to your farm operation in order to prevent the above liens from being created.
  3. If you are a landlord, supplier, or someone provided services to another’s farm operation and are not receiving proper payment, know that the above liens can assist in recovering debts that are owed to you and be aware of the time by which you must perfect such liens.

This information is general in nature and should not be construed as tax or legal advice.