Most farmers and ranchers will at one time or another visit with their banker to obtain financing. Most folks are familiar with the fact that when they finance a home or other real property that the bank will demand a mortgage or deed of trust to secure payment of the loan. If you fail to pay the loan, the bank will foreclose on your home.
Many people may be surprised to learn that the law also allows the bank to to secure a loan by placing a lien on your crops, your livestock, your equipment and other agricultural products.
Many farmers and ranchers obtain an operating loan so that they have money at the beginning of the year to buy seed, equipment, fertilizer, fuel, and to pay for other upfront operating expenses. While the bank may loan you money for such expenses, it will typically request a security interest in the crops, or the livestock, or the equipment that you are purchasing with the money being loaned.
At the time that the money is loaned the bank may have you sign a UCC-1F (see sample). This is a farm products financing statement and must be signed by you for the bank to obtain a security interest in farm products. On the form the bank must identify the farm product in which it is taking a secured interest.
For example, the bank could take a security interest in your wheat, potatoes, alfalfa, beans, wool, eggs, rabbits or bees wax. Even if you are raising worms, the bank can take a security interest in them little fellers too.
After you sign the financing statement it is filed with the Idaho Secretary of State. The Secretary of State records the financing statement and a record is kept which puts any other lenders, or buyers of your product, on notice that there is a secured interest in the product.
After the loan is satisfied the bank should sign, date and file with the Secretary of State a termination statement which terminates the secured interest in the agricultural product.
A security interest in your crops or livestock provides additional security to assure that the bank will be repaid for the money loaned to assist you in your farming and ranching. However, all of the hard work and sweat is still up to you.
– Lance J. Schuster is a lawyer at Beard St. Clair Gaffney. He and his wife raise kids and cattle on their small farm near Idaho Falls. He can be reached at 523-5171. Or lance @beardstclair.com