I. INTRODUCTION
The “Farm Products Exception” of the Uniform Commercial Code (U.C.C. § 9-307(1)) provided lenders with an extra measure of protection where the sale of farm products is concerned. As a result of these provisions, a buyer of farm products that are pledged as collateral for a loan does not acquire clear title to farm products and may be sued by a lender for recovery of the actual collateral or an amount equal to the value of the collateral.
The federal “Food Security Act of 1985” (FSA), effective December 24, 1986, established procedures for lenders desiring to maintain the “Farm Products Exception” protection. The FSA provides that a purchaser of farm products from an individual engaged in farming operations takes the farm products free and clear of a security interest unless: (1) the buyer of farm products has received direct notice of the security interest; or (2) the state has enacted a “federally approved” central filing system and the holder of the security interest in farm products has filed an “Effective Financing Statement” (EFS). Specifically, the FSA required each state to establish a central filing system meeting FSA requirements or to adopt a prenotification system in order to maintain the “Farm Products Exception” protection.
Nebraska adopted a “central filing system” pursuant to the provisions of Neb.Rev.Stat. § 52-1301 et seq. The Nebraska Legislature passed LB 1 (Third special session, 1986), authorizing the establishment of a central filing system in Nebraska. In December 1986, the United States Department of Agriculture approved the Nebraska central filing system.
II. OPERATION OF CENTRAL FILING SYSTEM
A. Filing Requirements
An original Effective Financing Statement (EFS) which is “paper filed” must be signed, authorized, or otherwise authenticated by the debtor. An original EFS that is filed electronically is not required to include the debtors’ signature. The original EFS must contain the following information:
1. Name and address of secured party;
2. Name and address of debtor;
3. Social Security number, Taxpayer Identification number, or other approved unique identifier of the debtor;
4. Description of farm products subject to the security interest;
5. Name of each county in Nebraska where the farm product is produced or located;
6. Crop year covered, unless each year’s crop of the farm product in question is to be subject to the particular security interest; and
7. Further details of the farm product subject to a security interest, if necessary to distinguish it from other quantities of such product owned by the same person, but not subject to the particular security interest.
Approved unique identifier means a number, combination of numbers and letters, or other identifier selected by the Secretary of State using a selection system or method approved by the Secretary of the United States Department of Agriculture.
Effective July 1, 1999, all new original EFS filings are made with the Secretary of State. An EFS filed on or before July 1, 1999 that had not lapsed on or before July 1, 1999, was continued by the filing of a continuation statement within the six-month period prior to the five-year anniversary date of the original EFS filing. The filing of such a continuation statement within the six-month period prior to the five-year anniversary date of the original EFS filing continued the effectiveness of the EFS for a period of five years from the anniversary date of the original filing. Subsequent continuation statements must be filed with the Secretary of State.
NOTE: An EFS that otherwise lapsed within the six-month period beginning on or after July 1, 1999, and ending on December 30, 1999, may have technically been filed with either the Secretary of State or in the same location as the original EFS was filed. Since the new central filing law did not become operative until July 1, 1999, it was recommended that continuation of an EFS filed prior to July 1, 1999, lapsing within the six-month period beginning on or after July 1, 1999, and ending on December 30, 1999, be filed in the same location as the original EFS was filed. EFS continuations filed after July 1, 1999, need to be filed with the Secretary of State. In either case, the filing of such a continuation statement will extend the effectiveness of the original EFS filing for the period of five years from the anniversary date of the original filing and all subsequent continuation statements must be filed with the Secretary of State.
B. Compilation and Distribution of Master List
From EFS filings made with the Secretary of State, the Secretary of State is required to maintain a master list. The master list is organized first by farm product, and within each product, all debtors are listed both in alphabetical order according to the debtors last name and in numerical order according to the debtors Social Security or Taxpayer Identification Number.
For an annual fee of $30 plus a fee for the requested list, any buyer of farm products may register with the Secretary of State. The fee for statewide lists of all statements on file are $25 per year for microfiche and $100 per year in paper form. These lists only cover one farm product and may be listed either numerically or alphabetically. Special lists which are any product lists other than statewide for all years may be purchased for $150.
In addition to registering to obtain the statewide list, a buyer of farm products may make a direct inquiry to any county clerk, orally or in writing, regarding an individual debtor. Following such inquiry, the county clerk conducts a search of the computer files and provides the inquiring party with an immediate oral report regarding information on file pertaining to the requested debtor.
In registering with the Secretary of State, registrants must supply their name and mailing address, including city, state and zip code, along with their business telephone number.
C. Other EFS Issues
The filing fee for an EFS, an amendment thereto or continuation thereof is $8.00. There is no filing fee for a termination statement or lapse statement.
An EFS remains effective for a period of five years and may be extended for additional five-year periods by the filing of a continuation statement within six months of its expiration date. An EFS Continuation Statement, whether “paper filed” or filed electronically is not required to include the debtors’ signature. However, the EFS Continuation Statement must be signed, authorized, or otherwise authenticated by the secured party. In addition, if any material changes occur following the filing of an EFS, the EFS must be amended in writing, within three months of such change, and if paper filed, signed, authorized, or otherwise authenticated by the debtor. If the amendment is filed electronically, it is not required to include the debtor’s signature. An amendment is not required to reflect a change in the name or address of the secured party, since it does not constitute a "material change."
Within ten days of final payment of all secured obligations, a secured lender is required to give the debtor written notice of the debtor’s right to have a “notice of lapse” filed. If the debtor does not send such a notice within ten days after proper demand, the secured lender is liable for $100 and any loss caused by the failure to send the notice of lapse. In order to avoid this requirement, the secured lender may give written notice to the debtor that the debtor may have a notice of lapse filed or acquire a waiver of such rights from the debtor and a request by the debtor that the EFS be retained. This notice or waiver may be obtained any time prior to the satisfaction of the debtor’s obligation and it is recommended that the waiver be obtained at the outset of the lending relationship.
III. UNIQUE APPROVED IDENTIFIER
The Secretary of State’s (SOS) office received approval from the United States Department of Agriculture to start using a Unique Identifier Number (UIN) to replace social security numbers and taxpayer identification numbers that were a requirement for all debtors on Effective Financing Statements (EFS) filings.
The UIN is a ten digit number derived from a combination of letters taken from the individual or organization name, coupled with the last four digits of the debtor’s social security number or federal tax identification number.
Effective October 1, 2014, social security and tax payer identification numbers will be removed from the central filing system in order to protect this private information from possible abuses such as identity theft. The SOS online filing system will be programmed to automatically generate the UIN for the filer and a separate web application will be available to generate or look-up a UIN for paper filers. The on-line filing application and the SOS website will update with new forms and information the morning of October 1, 2014.
Filings containing the social security or tax payer identification numbers of the debtor will no longer be accepted, as of October 1, 2014. In addition, filings containing the social security or tax payer identification number of the secured party (provision of which was optional), will no longer be accepted, as of October 1, 2014. As a result, any filing on or after October 1, 2014, that contains the social security or tax payer identification number of either the debtor or the secured party will be rejected.
A UIN will be generated for all existing debtors in the system and will appear on EFS search results and the Master Lien list (Quarterly Buyers’ Report). The Master Lien list that will go out the first week of January, 2015 will reflect this new change. The Master Lien list CD format will remain unchanged.
IV. CONCLUSION
The EFS central filing system is similar to – but does not replace – filings required under the UCC. The EFS central filing system is parallel to the UCC system, but a separate and new filing of an EFS for each debtor is required as set forth above. Unless a secured party files an EFS with the Secretary of State, its secured status will not extend to a buyer of farm products registered with the Secretary of State.