House Study Bill 130 - Introduced HOUSE FILE _____ BY (PROPOSED COMMITTEE ON STATE GOVERNMENT BILL BY CHAIRPERSON KAUFMANN) A BILL FOR An Act relating to credit transactions involving agricultural 1 items, including by providing for warehouse drying or 2 storage liens on crops and by establishing a central filing 3 system relating to security interests in farm products, 4 providing fees, and including applicability, contingent 5 implementation, and effective date provisions. 6 BE IT ENACTED BY THE GENERAL ASSEMBLY OF THE STATE OF IOWA: 7 TLSB 1771YC (6) 89 da/ns

H.F. _____ DIVISION I 1 WAREHOUSE DRYING OR STORAGE LIEN ON CROPS 2 PART A 3 PRINCIPAL PROVISIONS 4 Section 1. NEW SECTION . 571A.1 Definitions. 5 1. “Agricultural lien” means the same as defined in section 6 554.9102. 7 2. “Crop” means any of the following: 8 a. A plant used for food, animal feed, fiber, or oil, if the 9 plant is classified as a forage or cereal plant, including but 10 not limited to alfalfa, barley, buckwheat, corn, flax, forage, 11 millet, oats, popcorn, rye, sorghum, soybeans, sunflowers, 12 wheat, and grasses used for forage or silage. 13 b. An item having commercial value produced on a tree, vine, 14 or bush. 15 3. “Lien” means a warehouse drying or storage lien created 16 pursuant to section 571A.2. 17 4. “Possessory lien” means the same as defined in section 18 554.9333. 19 5. “Warehouse” means the same as defined in section 20 554.7102. 21 Sec. 2. NEW SECTION . 571A.2 Warehouse drying or storage 22 lien created. 23 A warehouse drying or storage lien is created as a possessory 24 lien on a crop delivered by a person to a warehouse acting as a 25 bailee under chapter 554, article 7, for the reasonable value 26 of services related to the drying or storage of the crop by 27 the warehouse. For purposes of chapter 554, the warehouse is 28 a secured creditor and lienholder and the person for whom the 29 warehouse renders such drying or storage services is a debtor. 30 Sec. 3. NEW SECTION . 571A.3 Effectiveness, perfection, and 31 termination of lien —— evidence of delivery. 32 1. a. A lien becomes effective at the time a debtor 33 delivers a crop to a warehouse for drying or storage. 34 b. The lien is automatically perfected at the time the lien 35 -1- LSB 1771YC (6) 89 da/ns 1/ 17

H.F. _____ becomes effective. The lien is no longer perfected on and 1 after March 1 of the calendar year following the calendar year 2 that the debtor delivered the crop to the warehouse. 3 c. The lien is terminated when the warehouse relinquishes 4 possession of the crop. 5 2. Evidence of a debtor’s delivery of a crop to a warehouse 6 includes but is not limited to a warehouse receipt as described 7 in section 554.7202, a scale ticket, or any other reasonable 8 evidence of delivery provided by the warehouse to the debtor. 9 Sec. 4. NEW SECTION . 571A.4 Priority of perfected lien. 10 During the period that a lien is perfected under section 11 571A.3, the lien has priority over any conflicting security 12 interest in or agricultural lien on the crop, regardless of 13 when such security interest or agricultural lien is perfected. 14 Sec. 5. NEW SECTION . 571A.5 Enforcement of lien. 15 During the period that a lien is perfected under section 16 571A.3, the warehouse may enforce the lien in the same manner 17 as an agricultural lien is enforced pursuant to chapter 554, 18 article 9, part 6. The warehouse may also enforce the lien by 19 exercising a right of setoff for the reasonable value of drying 20 or storage services upon the sale of the crop by the debtor 21 during the period that the lien is perfected. 22 Sec. 6. NEW SECTION . 571A.6 Other security interests or 23 liens held by warehouse. 24 1. This chapter does not affect a possessory lien held by 25 a warehouse under section 554.7209, subject to the relevant 26 provisions of chapter 554, article 7. 27 2. This chapter does not affect a warehouse’s position as a 28 secured party or holder of an agricultural lien under chapter 29 554, article 9. 30 PART B 31 CONFORMING PROVISIONS 32 Sec. 7. Section 554.7209, Code 2021, is amended by adding 33 the following new subsection: 34 NEW SUBSECTION . 6. A warehouse that is a lienholder under 35 -2- LSB 1771YC (6) 89 da/ns 2/ 17

H.F. _____ this section may enforce a warehouse drying or storage lien as 1 provided in chapter 571A to the extent allowed in that chapter 2 and in lieu of the lien created pursuant to this section. 3 Sec. 8. Section 570A.5, subsection 1, Code 2021, is amended 4 to read as follows: 5 1. a. The lien shall have priority over a lien or 6 security interest that applies subsequent to the time that the 7 agricultural supply dealer lien is perfected. 8 b. Notwithstanding paragraph “a” , the lien shall not have 9 priority over a warehouse drying or storage lien during the 10 period that the warehouse drying or storage lien is perfected 11 under section 571A.3. 12 Sec. 9. Section 571.3A, subsection 2, Code 2021, is amended 13 to read as follows: 14 2. a. A harvester’s lien that is perfected under section 15 571.3 shall have priority over a conflicting security interest 16 in harvested crops regardless of when such security interest is 17 perfected. A perfected harvester’s lien shall have priority 18 over a conflicting landlord’s lien as provided in chapter 570 , 19 regardless of when such landlord’s lien is perfected. 20 b. Notwithstanding paragraph “a” , the harvester’s lien 21 shall not have priority over a warehouse drying or storage lien 22 during the period that the warehouse drying or storage lien is 23 perfected under section 571A.3. 24 Sec. 10. Section 579B.4, subsection 4, paragraph a, 25 subparagraph (2), Code 2021, is amended to read as follows: 26 (2) Notwithstanding subparagraph (1), a commodity 27 production contract lien shall not be superior to a any of the 28 following: 29 (a) A warehouse drying or storage lien during the period 30 that the warehouse drying or storage lien is perfected under 31 section 571A.3. 32 (b) A court-ordered lien provided in section 717.4 . or a 33 (c) A veterinarian’s lien created under chapter 581 , if such 34 lien is perfected as an agricultural lien. 35 -3- LSB 1771YC (6) 89 da/ns 3/ 17

H.F. _____ PART C 1 APPLICABILITY 2 Sec. 11. APPLICABILITY. This division of this Act is 3 applicable to a crop delivered by a debtor for drying or 4 storage to a warehouse on and after the effective date of this 5 division of this Act. 6 DIVISION II 7 CENTRAL FILING SYSTEM FOR SECURITY INTERESTS IN FARM PRODUCTS 8 Sec. 12. Section 554.9102, subsection 4, Code 2021, is 9 amended to read as follows: 10 4. Federal Food Security Act. 11 a. For purposes of the Federal Food Security Act, 7 U.S.C. 12 §1631, written notice shall be considered to be received by the 13 person to whom it was delivered if the notice is delivered in 14 hand to the person, or mailed by certified or registered mail 15 with the proper postage and properly addressed to the person to 16 whom it was sent. The refusal of a person to whom a notice is 17 so mailed to accept delivery of the notice shall be considered 18 receipt. 19 b. This subsection is repealed on the date that this 20 division of this Act is implemented as provided in this 21 division of this Act. 22 Sec. 13. NEW SECTION . 554C.1 Definitions. 23 As used in this chapter, unless the context otherwise 24 requires: 25 1. “Buyer” means any of the following: 26 a. A person who, in the ordinary course of business, buys 27 farm products from a person engaged in farming operations who 28 is in the business of selling farm products. 29 b. A commission merchant. 30 c. A selling agent. 31 2. “Central filing system” means a system for filing 32 effective financing statements, and statements amending, 33 continuing, or terminating effective financing statements, 34 established under section 554C.4. 35 -4- LSB 1771YC (6) 89 da/ns 4/ 17

H.F. _____ 3. “Commission merchant” means a person engaged in the 1 business of receiving any farm product for sale, on commission, 2 or for or on behalf of another person. 3 4. “Crop year” means the calendar year in which a crop is or 4 will be harvested, animals are born or acquired, or poultry or 5 eggs are or will be sold. 6 5. “Effective financing statement” means a financing 7 statement required to be filed as part of the central filing 8 system as provided in section 554C.6. 9 6. “Secretary” means the secretary of state. 10 7. “Security interest” means an interest in farm products 11 that secures payment or performance of an obligation in the 12 same manner as provided in chapter 554. 13 8. “Selling agent” means a person, other than a commission 14 merchant, who is engaged in the business of negotiating the 15 sale and purchase of a farm product on behalf of a person 16 engaged in farming operations. 17 9. “Signature” means a symbol used to sign, execute, or 18 otherwise adopt a record or a process used to encrypt or 19 similarly process a record, in whole or in part, with the 20 present intent of authenticating the record for purposes of 21 identifying the person adopting or accepting the record. 22 Sec. 14. NEW SECTION . 554C.2 Special definitions. 23 To every extent consistent with the application of federal 24 law, unless the context otherwise requires: 25 1. “Agricultural lien” means the same as defined in section 26 554.9102. 27 2. “Approved unique identifier” means a number, combination 28 of numbers and letters, or other identifier selected by the 29 secretary using a selection system or method approved by the 30 United States secretary of agriculture. 31 3. “Debtor” means a debtor as defined in section 554.9102 32 who has an interest other than a security interest or lien in a 33 farm product, or any other person who owns a farm product and 34 subjects the farm product to a security interest whether or not 35 -5- LSB 1771YC (6) 89 da/ns 5/ 17

H.F. _____ that person owes a debt to the secured party. 1 4. “Farm products” means the same as defined in section 2 554.9102. 3 5. “Farming operation” means the same as defined in section 4 554.9102. 5 6. “Secured party” means a secured party as defined in 6 section 554.9102 in whose favor a security interest in farm 7 products is created. 8 7. “Security interest” means an interest in farm products 9 that secures payment or performance of an obligation in the 10 same manner as provided in chapter 554. 11 Sec. 15. NEW SECTION . 554C.3 Chapter consistent with 12 uniform commercial code. 13 This chapter shall be interpreted in conjunction with 14 chapter 554, and terms and phrases used in this chapter shall, 15 to every extent practicable, be interpreted consistently with 16 chapter 554, article 9. 17 Sec. 16. NEW SECTION . 554C.4 Central filing system —— 18 establishment and certification. 19 1. The secretary shall establish and administer a central 20 filing system, which shall provide for the electronic filing 21 and examining of effective financing statements and statements 22 amending, continuing, or terminating effective financing 23 statements on a statewide basis. 24 2. The central filing system shall be designed to allow 25 persons to file and examine effective financing statements 26 using the internet. The secretary may provide for the 27 filing and examining of statements amending, continuing, or 28 terminating effective financing statements in a paper format. 29 3. The central financing system must comply with the 30 requirements set forth in 7 U.S.C. §1631, and must be certified 31 by the United States secretary of agriculture prior to the date 32 that this division of this Act is implemented. 33 Sec. 17. NEW SECTION . 554C.5 Filing requirements. 34 1. The secretary shall provide for filing effective 35 -6- LSB 1771YC (6) 89 da/ns 6/ 17

H.F. _____ financing statements, and statements amending, continuing, or 1 terminating effective financing statements, as provided in 2 this section. The secretary shall prescribe all forms to be 3 used for filing. The presentation of a statement for filing 4 by a secured party and the acceptance of the statement by the 5 secretary constitutes filing under this section. 6 2. An effective financing statement is valid if the 7 statement substantially complies with the requirements of this 8 section and section 554C.6 even though it contains minor errors 9 that are not seriously misleading. 10 3. An effective financing statement must be an original or 11 reproduced copy which is signed by the secured party and the 12 debtor. If filed electronically, the debtor is not required to 13 sign the effective financing statement. The statement must be 14 filed with the secretary by the secured party. The secretary 15 shall record the date and hour of the filing of the effective 16 financing statement. 17 4. An effective financing statement must contain all of the 18 following: 19 a. The name and address of the secured party. 20 b. The name and address of the debtor. 21 c. The approved unique identifier of the debtor. 22 d. A description of the farm products subject to the 23 security interest, the county in Iowa where the farm products 24 are produced or will be produced, the crop year unless every 25 crop of the farm product in question for the duration of 26 the effective financing statement is to be subject to the 27 particular security interest, and further details of the 28 farm products subject to the security interest if needed to 29 distinguish it from other quantities of farm products owned by 30 the same person or persons but not subject to the particular 31 security interest. 32 e. Information that the secretary requires to comply with 7 33 U.S.C. §1631 or to administer this section. 34 5. The effective financing statement may cover more than one 35 -7- LSB 1771YC (6) 89 da/ns 7/ 17

H.F. _____ farm product located in more than one county. 1 6. A continuation statement shall be signed by the secured 2 party, identify the original effective financing statement by 3 file number, and state that the original financing statement 4 is still effective. 5 Sec. 18. NEW SECTION . 554C.6 Effectiveness. 6 1. An effective financing statement shall remain effective 7 for a period of five years from the date of filing, subject to 8 extensions for additional periods of five years each by filing 9 or refiling a continuation statement within six months before 10 the expiration of the five-year period. 11 2. Upon timely filing of a continuation statement, the 12 effectiveness of the original financing statement shall be 13 continued for five years after the last date to which the prior 14 filing was effective, whereupon it shall lapse unless another 15 continuation statement is filed prior to the lapse. Succeeding 16 continuation statements may be filed in the same manner to 17 continue the effectiveness of the original effective financing 18 statement. 19 3. The effective financing statement shall be amended in 20 writing to reflect a material change within three months of the 21 material change. The amendment shall be signed and filed as 22 required for an original effective financing statement. If the 23 statement is filed electronically, the signature of the debtor 24 shall not be required. 25 4. a. The effective financing statement lapses upon the 26 expiration of the effective period of the effective financing 27 statement or is terminated upon the filing of a statement 28 signed by the secured party that the effective financing 29 statement is terminated. 30 b. If the effective financing statement has not lapsed or is 31 not terminated and there are no outstanding secured obligations 32 and no commitments to make advances, incur obligations, or 33 otherwise give value, the debtor may notify the secured party 34 in writing to terminate the effective financing statement. 35 -8- LSB 1771YC (6) 89 da/ns 8/ 17

H.F. _____ c. Until the debtor instructs the secured party in writing 1 to terminate the effective financing statement, the secured 2 party has no obligation to terminate the effective financing 3 statement. 4 d. Within thirty days after receipt by the secured party 5 of the statement from the debtor to terminate the effective 6 financing statement, the secured party shall file with the 7 secretary a termination statement with respect to the effective 8 financing statement. 9 Sec. 19. NEW SECTION . 554C.7 Master list —— organization 10 and contents. 11 1. The secretary shall compile the effective financing 12 statements into a master list. 13 2. The master list shall be organized according to farm 14 products. The master list shall contain information required 15 to be contained in effective financing statements filed with 16 the secretary. The secretary shall arrange the master list for 17 each farm product as follows: 18 a. In alphabetical order according to the last name of the 19 individual debtors or, in the case of debtors doing business 20 other than as individuals, the first word in the name of such 21 debtors. 22 b. In numerical order according to the approved unique 23 identifier numbers of the debtors. 24 c. Geographically by county. 25 d. By crop year. 26 3. The master list shall include information regarding 27 buyers who register with the secretary on forms prescribed by 28 the secretary as provided in this section. 29 4. The secretary shall maintain a list of all buyers of farm 30 products who register with the secretary. A buyer registering 31 with the secretary shall complete forms requiring all of the 32 following information, as prescribed by the secretary: 33 a. The name and address of the buyer. 34 b. The interest of the buyer in receiving the list. 35 -9- LSB 1771YC (6) 89 da/ns 9/ 17

H.F. _____ c. The farm products in which the buyer has an interest. 1 Sec. 20. NEW SECTION . 554C.8 Master list —— distribution 2 and inquiries. 3 1. The secretary shall distribute to each registered buyer a 4 copy in written, printed, or electronic form of those portions 5 of the master list relating to farm products in which the buyer 6 has registered an interest. The secretary may provide for the 7 distribution of the master list or portions of the list on any 8 other medium requested by a registered buyer. If a registered 9 buyer so requests, the information provided to the buyer may 10 be limited to a county or group of counties where the farm 11 products are produced or to a crop year or crop years or to a 12 combination of those identifiers. 13 2. Distribution is subject to all of the following: 14 a. The distribution shall be by first class or electronic 15 mail. 16 b. The secretary shall adopt rules pursuant to chapter 17A 17 establishing the dates upon which the quarterly distributions 18 will be made, the dates after which a filing of an effective 19 financing statement will not be reflected on the next quarterly 20 distribution of lists, and the dates by which a buyer must 21 complete a registration to receive the next quarterly list. 22 3. The secretary shall remove information pertaining to 23 lapsed and terminated effective financing statements from the 24 master list prior to preparation of the lists required to be 25 distributed. 26 4. Upon written notice to the secretary by a registered 27 buyer requesting termination of the distribution of the 28 list to the registered buyer, the secretary shall terminate 29 distribution of the list to the registered buyer. 30 5. Oral and written inquiries by a buyer not registered 31 pursuant to section 554C.7 may be made to the secretary during 32 hours determined by the secretary. 33 a. The secretary may provide for a computerized system 34 for inquiry and confirmation which may be used in lieu of the 35 -10- LSB 1771YC (6) 89 da/ns 10/ 17

H.F. _____ inquiry and confirmation system otherwise provided for in this 1 section. 2 b. Written confirmation of the information provided orally 3 in response to the inquiry shall be delivered by first class 4 mail or electronic mail to the buyer, at an address provided 5 by the buyer, by the secretary not later than the second 6 regular business day following the day on which the inquiry was 7 received. 8 6. In order to verify the existence or nonexistence of a 9 security interest, a buyer may request a seller to disclose the 10 seller’s unique identifier number. 11 Sec. 21. NEW SECTION . 554C.9 Perfection —— creation of 12 superior interests. 13 1. If a buyer fails to register with the secretary prior 14 to the purchase of farm products, the buyer takes subject 15 to a security interest in the farm products only if the 16 secured party has filed an effective financing statement that 17 covers the farm products being sold, and the buyer could have 18 discovered the existence of the effective financing statement 19 prior to the purchase by accessing the database containing 20 effective financing statements filed electronically with the 21 secretary. 22 2. If the buyer registers with the secretary prior to the 23 purchase of the farm products, the buyer takes subject to a 24 security interest in the farm products only if the secured 25 party has filed an effective financing statement that covers 26 the farm products being sold, and the buyer does not secure 27 a waiver or release of the security interest as specified in 28 the effective financing statement from the secured party. 29 If a buyer in the ordinary course of business buying farm 30 products covered by the central filing system as provided in 31 section 554C.4 tenders to the seller the total purchase price 32 by means of a check or any other form of payment payable to 33 such seller and each security interest holder of the seller 34 identified in the central filing system for such products and 35 -11- LSB 1771YC (6) 89 da/ns 11/ 17

H.F. _____ if such security interest holder authorizes the negotiation 1 of such check or other form of payment, such authorization or 2 endorsement and payment thereof shall constitute a waiver or 3 release of the security interest specified to the extent of 4 the amount of the instrument. Such waiver or release of the 5 security interest shall not serve to establish or alter in any 6 way security interest or lien priorities under Iowa law. 7 Sec. 22. NEW SECTION . 554C.10 Fees. 8 1. The secretary shall establish fees for initially filing 9 an effective financing statement, or a statement amending, 10 continuing, or terminating an effective financing statement. 11 The fees shall not be more than provided for filing financing 12 statements as provided in section 554.9525. 13 2. The secretary may charge a buyer a fee for registering to 14 receive a master list or for receiving responses to inquiries 15 which are accessed in a printed format. The secretary shall 16 not charge a buyer a fee for registering to receive a master 17 list or for responding to buyer inquiries, including by 18 examining or printing effective financing statements, and 19 statements amending, continuing, or terminating effective 20 financing statements which are accessed in an electronic 21 format. 22 3. All moneys received by the secretary under this section 23 shall be handled in the same manner as repayment receipts, as 24 defined in section 8.2, and shall be used by the secretary 25 exclusively for the administration of this chapter. 26 Sec. 23. NEW SECTION . 554C.11 Rules. 27 The secretary shall adopt rules pursuant to chapter 17A 28 necessary or desirable to administer this chapter. 29 Sec. 24. CONTINGENT IMPLEMENTATION. 30 1. Except as provided in subsection 2, the provisions of 31 this division of this Act shall only be implemented, including 32 administered and enforced, on the first business day that 33 occurs ninety calendar days after federal certification of the 34 central filing system as provided in this division of this Act 35 -12- LSB 1771YC (6) 89 da/ns 12/ 17

H.F. _____ pursuant to 7 U.S.C. §1631. 1 2. The secretary of state shall adopt rules pursuant to 2 section 554C.11 necessary or desirable to implement, including 3 administer and enforce, the provisions of this division of this 4 Act beginning on the effective date of this division of this 5 Act. 6 a. To the extent that the secretary of state determines it 7 necessary to obtain federal certification of the central filing 8 system as provided in this division of this Act pursuant to 7 9 U.S.C. §1631, the secretary of state may adopt rules providing 10 for a waiver or modification of a provision of this division 11 of this Act, or may supplement a provision of this division of 12 this Act. 13 b. A rule adopted pursuant to paragraph “a” shall be 14 rescinded by its own terms not later than July 1 of the 15 legislative session succeeding implementation of this division 16 of this Act. Prior to that legislative session, the secretary 17 of state shall propose legislation to the general assembly 18 necessary to comply with the certification requirements of 7 19 U.S.C. §1631. 20 3. Upon federal certification of the central filing system 21 as provided in this division of this Act pursuant to 7 U.S.C. 22 §1631, the secretary of state shall provide notice of the 23 implementation date in three consecutive issues of the Iowa 24 administrative bulletin prior to the implementation date. The 25 secretary of state shall forward a copy of the notice to the 26 Iowa Code editor prior to its first publication. Until the 27 implementation date of this division of this Act, persons 28 shall take subject to or free of a security interest in the 29 same manner and according to the same procedures applicable 30 immediately prior to the implementation date of this division 31 of this Act. 32 Sec. 25. EFFECTIVE DATE. This division of this Act, being 33 deemed of immediate importance, takes effect upon enactment. 34 EXPLANATION 35 -13- LSB 1771YC (6) 89 da/ns 13/ 17

H.F. _____ The inclusion of this explanation does not constitute agreement with 1 the explanation’s substance by the members of the general assembly. 2 GENERAL. This bill provides for credit transactions 3 involving agricultural goods which include crops (e.g., grain) 4 and other farm products usually governed by Iowa’s version 5 of the Uniform Commercial Code (UCC), Code chapter 554, by 6 regulating the commercial relationships existing between 7 debtors, creditors, and buyers. It also provides for special 8 applicability, implementation, and effective date provisions. 9 WAREHOUSE DRYING OR STORAGE LIEN. The bill creates new 10 Code chapter 571A which provides for a special lien referred 11 to as a warehouse drying or storage lien imposed in favor of a 12 warehouse (secured party or lienholder) upon a crop delivered 13 by a debtor (e.g., farmer) for reasonable expenses relating to 14 drying and storing the crop. During the period that the lien 15 is perfected, it has priority over any competing creditor’s 16 interest. Thus, a warehouse could enforce the lien before 17 all other competing security interests and statutory liens, 18 including agricultural liens, and common law liens regardless 19 of if or when the competing security interest or lien was 20 perfected. In this case, the lien is created as a possessory 21 lien in favor of the warehouse acting as a special type of 22 creditor serving as custodian and referred to as a bailee 23 (see Code chapter 554, article 7). The lien is automatically 24 perfected at the time the warehouse takes possession of the 25 crop. The warehouse’s special perfection status expires on 26 March 1 of the calendar year following the calendar year that 27 the debtor delivered the crop to the warehouse. The lien 28 is terminated when the warehouse relinquishes possession of 29 the crop. During the period that the lien is perfected, the 30 warehouse may enforce the lien in the same manner provided for 31 perfected agricultural liens under the UCC. The new lien does 32 not affect other possessory liens, or other security interests 33 or agricultural liens that may be held by the warehouse. The 34 lien is applicable to a crop delivered by a debtor for drying 35 -14- LSB 1771YC (6) 89 da/ns 14/ 17

H.F. _____ or storage to a warehouse on or after July 1, 2021. 1 BACKGROUND. Under Iowa’s version of the UCC, article 9, 2 a security interest is created by a contract referred to as 3 a security agreement executed by a creditor and debtor in 4 exchange for obtaining a loan (Code section 554.9201). The 5 security interest is said to attach to the debtor’s collateral 6 (Code section 554.9203) and based on that agreement the 7 creditor may perfect the security interest and obtain priority 8 over the covered collateral among competing creditors when 9 enforcing the debt (Code section 554.9308). There are several 10 ways in which a creditor may perfect a security interest, 11 including by possession. Possession is used to perfect a 12 general warehouse lien allowed under Code chapter 554, article 13 7 (Code section 554.7209). More commonly, a security interest 14 is perfected by filing a financing statement (referred to as 15 a UCC-1) with the secretary of state (Code section 554.9308). 16 In addition, various Code chapters existing outside the UCC 17 create agricultural liens in commodities produced by a farming 18 operation. An agricultural lien is a statutory lien that 19 may secure the payment of a financial obligation associated 20 with commodity production, and is not necessarily possessory, 21 meaning that it may continue to cover the commodity after 22 harvest and delivery (Code section 554.9102(1)(e)). An 23 agricultural lien is also perfected by filing a financing 24 statement with the secretary of state (Code section 554.9338). 25 CENTRALIZED FILING SYSTEM. The bill creates a centralized, 26 statewide filing system (system) for security interests in 27 farm products to notify buyers of farm products subject to an 28 attached security interest. Farm products include goods other 29 than standing timber produced as part of a farming operation 30 and includes crops, aquatic goods, livestock, supplies used 31 or produced on the farming operation, or products of crops or 32 livestock in an unmanufactured form (Code section 554.9102). 33 The system must be certified by the United States department 34 of agriculture. The bill allows a person who has a secured 35 -15- LSB 1771YC (6) 89 da/ns 15/ 17

H.F. _____ interest attached to farm products to complete and file a 1 document referred to as an effective financing statement 2 or a statement amending, continuing, or terminating the 3 effective financing statement, with the secretary of state. 4 The secretary must compile information contained in the 5 effective financing statements into a master list organized 6 according to farm products which the secretary must regularly 7 distribute to buyers of farm products registered with the 8 secretary. The secretary may also respond to verbal or 9 written inquiries by buyers including unregistered buyers and 10 deliver a written confirmation to inquiring buyers regarding 11 whether a farm product is subject to a security interest. If 12 a buyer registers with the secretary prior to the purchase 13 of farm products, the registered buyer takes subject to the 14 security interest only if the secured party has filed an 15 effective financing statement that covers the farm products 16 being sold, unless the registered buyer secures a release of 17 the security interest. If a buyer fails to register with the 18 secretary, the buyer takes subject to the security interest 19 only if the secured party has filed an effective financing 20 statement that covers the farm products, and the buyer could 21 have discovered the existence of the effective financing 22 statement by conducting an inquiry and receiving a response and 23 confirmation. The bill authorizes the secretary to establish 24 fees for secured parties filing effective financing statements 25 and buyers registering with the secretary. The secretary must 26 adopt rules as necessary to implement, administer, and enforce 27 the provisions of the system. The system becomes effective on 28 the first business day occurring 90 days after certification by 29 the United States department of agriculture and publication of 30 three successive notices in the Iowa administrative bulletin. 31 BACKGROUND. Article 9 of the UCC provides an exception for 32 buyers in the ordinary course of business who generally take 33 free of a security interest created by the seller even in cases 34 in which the security interest has been perfected and the buyer 35 -16- LSB 1771YC (6) 89 da/ns 16/ 17

H.F. _____ is aware of its existence (Code section 554.9320). However, 1 notwithstanding this exception, a buyer who purchases a farm 2 product from a person engaged in farming operations may not 3 take free of a security interest. The federal Food Security 4 Act of 1985, in relevant part (7 U.S.C. §1631), preempts the 5 state’s article 9 requirements by providing that a buyer in 6 the ordinary course of business, a commission merchant, or a 7 selling agent (all classified under the term “buyer”) may buy 8 farm products without being subject to a security interest 9 created by the seller but only if the buyer does not have 10 actual or constructive notice of that security interest. The 11 federal law allows states to elect between two notification 12 options: (1) Iowa’s current law requiring the secured party to 13 deliver direct notice to potential buyers of a secured party’s 14 interest in the farm products within one year prior to sale, 15 or (2) the system described in the bill. In either case, the 16 federal law does not supersede article 9 requirements that 17 establish priorities among creditors. 18 -17- LSB 1771YC (6) 89 da/ns 17/ 17