NEBANKERS.ORG 12 COUNSELOR’S CORNER Brian Barmettler, Nicholas Buda and Brandon Tomjack, Baird Holm, LLP A Victory for Secured Lenders: Nebraska Supreme Court Confirms a Secured Lender’s Right to Collect Its Borrowers’ Accounts Upon Default LENDERS OFTEN REQUIRE THEIR borrowers grant them a security interest in their accounts in order to secure the borrowers’ loan obligations. Accounts are arguably one of the most liquid types of collateral available to secured lenders and can sometimes lead to substantial recovery for lenders when loans go bad. Although the creation, attachment, and perfection of a security interest in accounts are fairly straightforward under the Nebraska Uniform Commercial Code (the “UCC”), foreclosing accounts is no easy task. You cannot send the sheriff or your local repo agent to collect a thirdparty’s legal obligation to pay your borrower. Fortunately, the Nebraska Supreme Court recently confirmed a secured lender’s right to collect its borrower’s accounts and identified the applicable requirements and procedures in its decision of First State Bank Nebraska v. MP Nexlevel, LLC, 307 Neb. 198, 948 N.W.2d 708 (2020). But, as discussed below, the path to the decision was riddled with a puzzle of complicated statutory language and lender-hostile precedents from other jurisdictions. The Facts of the Case The case transpired like many familiar loan transactions. The bank loaned money to Husker Underground, a local construction business, and Husker Underground granted the bank a security interest in essentially all of its assets. In particular, Husker Underground granted the bank a security interest in its accounts: money third parties owed the debtor for construction services Husker Underground had performed. The bank properly perfected its security interest in Husker Underground’s accounts by filing a financing statement with the Nebraska Secretary of State. A few years later, Husker Underground stopped making loan payments, and the bank declared Husker Underground in default. Upon Husker Underground’s default, the bank began exercising its remedies to collect Husker Underground’s obligations. The bank liquidated its collateral to minimize losses, including Husker Underground’s accounts. Among other things, the bank attempted to liquidate Husker Underground’s accounts, as set forth in Part 6, Article 9 of the UCC. It sent deflection notices to one of Husker Underground’s account debtors — a company that owed Husker Underground money for construction projects — and demanded the account debtor pay all amounts due on the accounts directly to the bank instead of Husker Underground. One of Husker Underground’s account debtors, MP NexLevel, ignored three of the bank’s deflection notices. Despite the warning in the bank’s notices indicating there may be adverse consequences for MP NexLevel if it continued to make its payments to Husker Underground rather than the bank, MP NexLevel paid Husker Underground more than $400,000 after receiving the bank’s notices. As a result, the bank filed suit against MP NexLevel to recover the amounts paid by MP NexLevel to Husker Underground after the bank sent its deflection notices. The District Court Decision MP NexLevel was not involved with the bank’s loan to Husker Underground and did not have any agreements with the bank. MP NexLevel’s contract
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