STATE OF MICHIGAN

FRANK J. KELLEY, ATTORNEY GENERAL

Opinion No. 5978

September 15, 1981

REAL ESTATE:

Security interest in crops as a lien on leased farmland

SECURED TRANSACTIONS:

Security interest in growing crops

Title to real property is not impaired by a security agreement given by a tenant which covers crops grown by a lessee of the land as collateral for money borrowed by the lessee.

Honorable Lewis N. Dodak

State Representative

The Capitol

Lansing, Michigan

You have requested my opinion whether a lessee who borrows money which is secured by crops grown on the lessor's land impairs the lessor's title to the land.

The Uniform Commercial Code, 1962 PA 174, Art 9, Secured Transactions; MCLA 440.9101 et seq; MSA 19.9101 et seq, regulates security interests in personal property and fixtures, including goods, which include crops as farm products. ⁽¹⁾ See 1962 PA 174, supra, Sec. 9102(1)(a), as last amended by 1978 PA 369. 1962 PA 174, art 9, supra, does not impair the title of the lessor-landlord as to real property upon which a security interest exists with respect to crops as collateral. ⁽²⁾ 1962 PA 174, Sec. 9104, as last amended by 1978 PA 369, provides:

As noted in the Official U.C.C. Comment, to section 9104, supra, paragraph 2, with the exception of fixtures, article 9 'applies only to security interests in personal property.' See 1962 PA 174, Sec. 9102(1)(a), supra

In Scovill v Ludwick, 20 Mich App 547; 174 NW2d 309 (1969), the court held that a chattel mortgage of cattle and their natural increase, which mortgage was executed by a lessee in possession of the cattle under a lease agreement by which title to the cattle remained in the lessor, was insufficient to convey any interest to the mortgagee because the mortgagor-lessee had nothing to convey. Title to the cattle remained in the lessor-cattle owner, as Michigan is a lien-theory state. 20 Mich App 547, 550, citing Young v Phillips, 203 Mich 566; 169 NW 822 (1918). Similarly, where a lessee of farmland pledges crops in a security agreement as collateral for a loan, the agreement does not impair the lessor's title to the land since the lessee has no title thereto to convey or encumber. This conclusion is compelled under the language of 1962 PA 174, Sec. 9104(j), supra, which declares that 1962 PA 174, art 9, supra, is inapplicable to creation of an interest in or lien on real estate, including a lease or rental arrangement.

Further indication that a security agreement entered under 1962 PA 174, art 9, supra, does not address nor impair title to real estate is evinced by 1962 PA 174, supra, Sec. 9401(1)(a), as last amended by 1980 PA 53, which provides that where farm products such as crops are collateral, and a security agreement is filed to perfect a security interest, the agreement 'shall not be recorded in the real estate records' of the register of deeds of the county in which the land is located. See, also, 1962 PA 174, Sec. 9402(1), as last amended by 1980 PA 53, providing that when the financing statement covers crops growing or to be grown, the financing statement shall reasonably identify the real estate; a legal description of the real estate is not necessary.

Although the lender is authorized to file the financing statement pursuant to 1962 PA 174, Art 9, supra, to preserve the priority of the security in the crops, and 1962 PA 174, Art 9, Sec. 9401(1)(a), supra, prior to its amendment by 1980 PA 53, permitted its recording in the real estate records of the register of deeds of the county in which the land upon which crops are grown is located, such filing did not create any interest in the land. It should be noted that 1962 PA 174, Art 9, Sec. 9401(1)(a), as last amended by 1980 PA 53, supra, effective March 27, 1980, expressly prohibits recording of the financing statement in the real estate records of the county in which the land upon which the crops are grown is located.

It is my opinion, therefore, that a lessor's title to real property is not impaired by a security agreement which covers crops grown by a lessee as collateral for money borrowed by the lessee.

Frank J. Kelley