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Sue Murphy and Sakina Rasheed in Dallas Bar Association Headnotes: Beware of Hidden Liens
Sue P. Murphy, Sakina Rasheed

Whether you are representing a secured lender, litigant, purchaser, debtor, or a client in bankruptcy, understanding whether the assets at issue are encumbered by liens can be critical. Many people mistakenly believe that UCC, judgment lien, tax lien and real property searches will disclose the universe of potential liens on a borrower’s assets.  However, a number of other liens may be lurking, hidden from such searches.

Such “hidden” liens include: (i) agricultural liens, such as trust liens under the Perishable Agricultural Commodities Act (PACA) and the Packers and Stockyards Act; (ii) liens that arise by sale of assets; (iii) liens imposed by operation of law, such as liens of mechanics, materialmen, warehousemen, carriers and landlords; (iv) security interests in assets that can be perfected by control, such as deposit accounts and securities accounts; and (v) security interests in assets that can be perfected by possession, such as goods, instruments, chattel paper, or tangible negotiable documents.

Under a 1984 amendment to PACA, perishable agricultural products are placed in a “PACA trust” and are set aside to pay unpaid suppliers. In Reaves Brokerage v. Sunbelt Fruit & Vegetable, 336 F.3d 410 (5th Cir. 2003), the Fifth Circuit held that PACA protects sellers of perishable commodities by giving them priority over secured creditors. Similarly, in Nickey Gregory Co., LLC v. AgriCap, LLC, 597 F3d 591 (4th Cir. 2010), the Fourth Circuit held that an unpaid supplier of perishable agricultural products had a superior interest in the accounts receivables and proceeds held by a secured lender.

Excerpted from Dallas Bar Association Headnotes. To view full article, click here.