Protect Yourself from Liens When Purchasing Assets

Written by: The AgCountry Legal Department

Farming and ranching require you to periodically upgrade your equipment or purchase products for your operation. These transactions can take place between you and a business or you and another farmer or rancher. Issues can arise when farmers purchase equipment or farm products from another individual that are subject to liens.

If you do buy from another individual, here are steps you can take to protect yourself against purchasing an asset subject to a lien.

Liens can arise from multiple sources but can also be identified ahead of time. The most common are liens that lenders attach against borrowers’ property to secure debt. Other liens include supplier liens and landlord liens.

Generally, liens are perfected when a lender files a UCC financing statement with the Secretary of State (SOS) in Minnesota or North Dakota, or with the Department of Financial Institutions (DFI) in Wisconsin. The SOS or DFI creates a searchable list on their respective websites showing liens filed against their residents.

For a small fee, you can review the filing to determine which assets are attached to the lien. This is a great way to prevent a future issue. If you purchase a piece of equipment, for example, subject to a lien, the lien remains on the equipment until the lienholder is paid. The fact that you paid the owner does not remove the lien.

If you identify a lien on a piece of equipment or a farm product, the lienholder can release the lien. Before the time of purchase, you will need a release of the collateral, evidenced by a termination statement.

For farm products—like grain, milk, cattle, bales, feed, silage, and the like—a separate, parallel filing called an Effective Financing Statement (EFS) in Minnesota and a Central Notification System notice (CNS) in North Dakota and must be filed.

In Minnesota and North Dakota, farm products are bought and sold free of any liens unless the lienholder has filed a CNS/EFS. Even if a CNS/EFS has been filed, a buyer may still take the farm products free of any lien if payment is made through a joint check to both the seller and all lienholders who have filed a CNS/EFS.

In Wisconsin, farm products are bought and sold free of any lien unless the lienholder gives the buyer direct notice of the lienholder’s interest in the farm product. For example, if an EFS is filed against cattle in Minnesota, and a buyer makes the check solely to the seller and not the lienholder, the lienholder’s lien remains attached to the cattle even in possession of the buyer.

To protect yourself when purchasing farm products or other assets, particularly in private party transactions, please search the UCC records and CNS/EFS (if you are purchasing farm products in Minnesota and North Dakota) to determine if there are any liens against the item to be purchased. If there are liens, contact the lienholder to obtain a release of the collateral before or at the time of purchase. If you are purchasing farm products, make the check jointly payable to the seller and all lienholders. This will prevent you from purchasing an asset subject to a lien or from paying for the item twice.

This article is for informational and educational purposes and is not legal advice. If you have any questions, please contact your legal counsel.