Intercreditor litigation & lien priority disputes

A distressed credit can become a dispute between banks when more than one lender claims the same assets or sale proceeds. The disagreement may concern whose lien comes first, which obligations the collateral secures, whether a release was authorized or whether an intercreditor agreement limits enforcement.

The starting point is a clear account of the borrower entities, collateral ownership, loan documents, filings and transactions. We examine those records together to identify the rights each creditor actually holds and the issues that require negotiation or litigation.

A financing statement is one part of the analysis. Collateral descriptions, attachment, perfection, filing history and the nature of the property can all affect the result.

Minnesota Statutes section 336.9-322 sets out general priority rules for conflicting security interests and agricultural liens, subject to exceptions and other applicable provisions. Mortgages, fixtures and particular statutory liens can require additional analysis.

We evaluate competing claims with attention to both the legal priority and the assets available to satisfy the debt. Where a court determination is needed, the dispute may involve declaratory relief concerning lien validity, priority or entitlement to proceeds.

An intercreditor agreement can govern payment priority, enforcement rights and the treatment of proceeds. Minnesota’s Uniform Commercial Code recognizes subordination by agreement.

The language matters. Disputes may concern the obligations covered by the agreement, restrictions on enforcement, required notices, consent to modifications or collateral releases, and obligations to turn over payments received.

We review the agreement alongside the lending history and the conduct giving rise to the dispute, including amendments, renewals, additional advances and communications between creditors.

For disputes between lead banks and participating lenders over a participation agreement, see our loan participation disputes practice.

• Disputes between banks over security interests, mortgages and competing collateral claims.
• Declaratory actions concerning lien validity, priority and rights to proceeds.
• Enforcement and interpretation of intercreditor and subordination agreements.
• Disagreements over collateral releases, sale terms and application of payments.
• Priority disputes involving equipment, fixtures, agricultural assets and statutory liens.
• Claims involving diverted proceeds or challenged payments and lien grants.
• Creditor disputes arising during workouts, receiverships, assignments for the benefit of creditors and bankruptcy.

A payment, lien grant or other transaction involving another lender may also raise a voidable-transfer issue. These claims require examination of the transferred property, existing liens, consideration, the debtor’s circumstances and the recipient’s defenses.

We assess claims under Minnesota’s voidable-transfer statute together with the statutory defenses and protections for recipients. The fact that one creditor received payment while another remains unpaid does not, by itself, establish a voidable transfer.

Our fraudulent transfers and asset recovery practice addresses the related investigation, claims and available remedies.

Matthew Bialick represented American Federal Bank in Lighthouse Management Inc. v. Oberg Family Farms, 966 N.W.2d 29 (Minn. App. 2021). Following a sale in an assignment for the benefit of creditors, American Federal Bank, Bell Bank and mechanic’s lien claimants asserted competing rights to the proceeds.

Priority depended in part on whether grain bins were real estate fixtures or personal property. The published opinion established a fact-specific test for that classification. The Court of Appeals reversed summary judgment and remanded for further proceedings.

The case illustrates how collateral classification and lien disputes can determine a lender’s position in a distressed credit.

Read MJB’s Lighthouse case summary

Read the published Minnesota Court of Appeals opinion

A priority dispute may affect whether a commercial loan workout is workable, how collateral enforcement proceeds or how assets are administered through a receivership or assignment for the benefit of creditors.

We assess the disputed rights alongside collateral value, available proceeds, litigation expense and the effect of a proposed resolution on the lender’s remaining remedies. Farm credits may also require the additional analysis addressed by our agricultural banking and finance practice.

Contact Matthew Bialick about a dispute with another lender or creditor. Useful materials may include loan and security documents, intercreditor agreements, lien searches, payment records and correspondence concerning the disputed collateral or proceeds.

First contact the firm to arrange a conflict check and an appropriate method for sharing documents.

Contact Matthew
952-239-3095
View Matthew’s profile
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