Florida is a state with plenty of agribusiness and lenders frequently consider commercial loans to growers of farm products with the products themselves as collateral. Farm products are not “goods” under the UCC definition and they are subject to some unique rules effecting a lender’s ability to perfect a lien on them. In that regard, it is essential that the lender consider a federal law called the Federal Food Security Act of 1985. This law states that, as a general proposition, buyers of farm products in the ordinary course of business take the farm products free and clear of any security interest created by the seller, even when the interest is perfected and the buyer knows of its existence. This, of course, is not a desirable result for a secured lender attempting to obtain a valid and enforceable security interest in those products. However, the law further states that a buyer’s interest will be subject to the security interest (the result desired by a lender to best protect its collateral position) if, within one (1) year before the sale of the farm products, the buyer receives written notice of the security interest from the secured lender. This notice must contain certain information by law. Further, in Florida, the notice must be given annually to the known buyers of the produce. The practical tip here is to make sure your loan documents require that the borrower annually provide the lender with updated lists of buyers with whom it does business. Make this a covenant in the applicable loan agreement and actively monitor to insure compliance. Further, make certain to give the required notice annually to those purchasing produce from your borrower using a form notice that contains all the information required by law.

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