Someone once told me Illinois mechanics lien claims are the second leading cause of legal malpractice claims in the State of Illinois. I do not know that to be true. But it is easy to believe.
In fact, I intended to title this post “1,001 Ways to Screw Up an Illinois Mechanics Lien Claim.”
No foolin’ – this tome is not even close to an exhaustive list of ways to get it wrong.
I just ran out of time… so 101 ways to defeat Illinois mechanics lien claims it is!
Don’t Be Fooled: Illinois Mechanics Lien Claims Are Complex
The ‘lien forms’ used to make Illinois mechanics lien claims look deceptively simple. It looks like anyone could simply ‘fill in the blanks’ and voila, create a new – and winning – Illinois mechanics lien claim.
Nothing could be further from the truth!
I like to joke that using a semicolon, where a comma would be more appropriate, can potentially invalidate Illinois mechanics lien claims. I also like to joke that my clients should proofread draft lien claims we prepare with an unmatched rigor – until their eyeballs fall out, I usually add.
But there’s a little truth to every joke, right?
It is rare to find Illinois mechanics lien claims which are not susceptible to attack on multiple grounds. It is much easier to defend against a lien than to ‘get it right’ for an unpaid lien claimant.
Caveat: this post is about mechanics lien claims on private projects, built with private money, on private property. Mechanics liens on public projects are a different animal entirely.
Why Are Illinois Mechanics Lien Claims So Difficult for Lien Claimants to Get Right?
There are bunch of correct answers to this question.
One is that the Illinois Mechanics Lien Act is a bizarre and byzantine statute first drafted some in 1825. I’ve read it dozens of times. My eyes are connected to my brain. And the Illinois Lien Act is central to my law practice. Yet I struggle to understand it.
Part of the issue is how the Illinois Mechanics Lien Act is written. It’s a torturous read, even for construction lawyers! I’ve always thought it unfair for the Illinois General Assembly to “do that” to the English language. We don’t talk “like that” anymore.
The Illinois Mechanics Lien Act is also fraught with traps for the unwary.
For example, the text of the Lien Act does not expressly require Illinois mechanics lien claims to state the last date of the lien claimant’s work. Yet, Illinois courts have interpreted reciting the last date of work on the lien document as a requirement for Illinois mechanics lien claims.
Isn’t that like a police officer giving you a ticket for blowing through an invisible stop sign?
Relatedly, you cannot read the Illinois Mechanics Lien Act without nearly two centuries of judicial decisions which interpret its meaning. And there is a lot of Illinois mechanics lien caselaw. What’s the effect of all that judicial precedent?
It means that every rule has an exception. Every exception has an exception. And so on. That is one reason why nothing in this post is legal advice for you. The odds of a non-lawyer successfully preparing Illinois mechanics lien claims without fatal flaws, without the benefit of counsel from an Illinois construction attorney, are slim.
The Illinois Mechanics Lien Act throws potential lien claimants a curveball by expressing certain deadlines in months (i.e., 4 months, not 120 days) and others in days (i.e., 90 days, not 3 months). Some months have 28 days (unless it is a Leap Year) and some months have 31 days.
I find it hard to believe this was intentional. I think it was a typo from someone who lived in the 19th century and wrote with a quill feather pen in a powered wig.
The Illinois Mechanics Lien Act: Beautifully Balancing Competing Interests for 200 Years
Another reason Illinois mechanics lien claims are so hard to get right is the Illinois Lien Act attempts the difficult task of balancing important competing interests.
Sure, one goal of the Illinois Mechanics Lien Act is to help designers and contractors secure payment for services rendered from property owners, developers, and lenders.
However, the Illinois Mechanics Lien Act contains very specific requirements for mechanics lien claimants to meet with exacting precision. These requirements further another goal: to empower property owners, developers, lenders, and purchasers to confidently ‘transact’ in real property – without being subject to an undue risk of Illinois mechanics lien claims.
Here is a key point: the Illinois Mechanics Lien Act is about predictability, not about fairness. Someone usually ‘gets the short end of the stick’ in Illinois mechanics lien claims. It is common for deserving contractors and designers and workers to go unpaid.
Seems unfair right? That a contractor or designer, which was not paid for good work performed, would lose its Illinois mechanics lien claim on a technicality? No disagreement here. Kinda unfair.
But this is also true: people should be able to rely on recorded real estate records.
If Illinois mechanics lien claims list the wrong Permanent Identification Number (PIN) number, or address, or the incorrect “last date of work,” or contains other errors, a search of the real property records may not reveal the existence of Illinois mechanics lien claims. That opens the possibility of another ‘innocent’ party being blindsided by Illinois mechanics lien claims they could not have discovered despite a diligent search of the real property records.
This is not a make-believe concern. The Illinois Mechanics Lien Act contains short deadlines, but it contains long ones as well – some of the deadlines are years after the potential mechanics lien claimant’s last date of work. This means that a lender or buyer of the real property in question might do a deal, in reliance on inaccurate real property records, and then get blindsided by an unknown lien claim, masked by those inaccuracies, after the deal is done.
That also seems unfair right? I think so – at least in many circumstances. In that case, shouldn’t the mechanics lien claim – often – be invalid under Illinois mechanics lien law? Shouldn’t the third party who transacts in the property be protected from hidden Illinois mechanics lien claims?
Well regardless of my opinion, that is how the Illinois Mechanics Lien Act works. Generally, whoever ‘best complies’ with the Illinois Mechanics Lien Act wins, often leaving the other parties with an interest in the property or project with the proverbial ‘short end of the stick.’
In fact, I argue real estate developers and project owners should never lose lien claims … IF they follow the Illinois Mechanics Lien Act, as they make periodic payments, usually with monthly applications for payment, on their design and construction projects.
101 Ways to Defeat – or Screw Up – Illinois Mechanics Lien Claims
So buckle up! Take a deep breath. Grab your stress relief ball. And let’s get to it…
Failing To Sufficiently Describe Necessary Parties By Their Correct and Complete Names – In a Manner Not Inconsistent With the Design and Construction Contracts Which Give Rise to the Lien Claim – Can Invalidate Illinois Mechanics Lien Claims. Lien claims should accurately identify the correct owner of the real property to be liened, and the parties to the construction contracts and subcontracts from which the Illinois mechanics lien claims spring. Correctly identifying the owner of the property is not rocket science, but you need to get this right. You might think that you are working for the property owner. But do you really? Do you really know the name of the party identified in the Illinois real property records as the fee simple title holder? Perhaps the property is not owned by the “owner” identified in your design or construction contract. Perhaps it is owned by a corporate affiliate of the party listed in your contract as the owner? Or perhaps it is owned by a land trust? Perhaps it is owned by the aunt of the person who you’ve always thought was the owner? Perhaps it is owned by a silent partner, a financier of the project which leaves the “grunt work” of the development project to its joint venture partner? Perhaps you were hired by that junior partner, i.e., not the property owner? The point is that you should make no assumptions about who owns the property to be encumbered with Illinois Mechanics Lien claims. You need to find out for sure. There are a bunch of ways to identify the actual owner of the real property. We almost always hire a title insurer to do official research into the title records and present us with a report of all parties who have a recorded interest in the property to be liened. This can include the owner, lender, other lien claimants, tenants, etc. When preparing large lien claims, we sometimes pay for that title report (sometimes called a “tract search” or its more expensive sibling, the “minutes of foreclosure”) at the outset of our due diligence, and then pay again for an update a week or two later before officially recording Illinois mechanics lien claims. We usually get copies of all of the documents referenced in the title report, and then scrupulously read those primary recorded documents to look for any fact or tidbit that could be used to support or attack the mechanics lien claim, including relationships between corporate affiliates of necessary parties. We plan the allegations of our mechanics lien claims to strategically anticipate possible motions to dismiss the mechanics lien long before any lawsuit to foreclose the lien is even on the horizon. And you need to be careful to correctly identify certain other necessary parties in the allegations of the mechanics lien, not just the property owner. A written contract will, often, disclose the correct and complete names of the parties. I am careful about this when I prepare design and construction contracts. But it important that these names be verified, in some official way, to be sure that they are the actual legal name of the parties who should be listed in the mechanics lien claim. I often look at the Illinois Secretary of State’s website to identify true and accurate names of architects, engineers, contractors, and others involved in the design and construction project who should be named in the Illinois mechanics lien claim. There is also quite a bit of nuance here – if the design and construction contracts and the official records of the Secretary of State describe the necessary parties inconsistently, as just one example. This is where quite a bit of ‘legal judgment’ is necessary. Without going into too much detail, I will say this: it is almost always possible to “have your cake and eat it too” when confronted with such irreconcilable inconsistencies in the ‘official records.’ The key is to plan in advance how you might respond to a hypothetical attack on the mechanics lien claim, if it becomes necessary to foreclose the mechanics lien. We record Illinois mechanics lien claims with the end in mind – by thinking about hypothetical future attacks on the mechanics lien, and how we might outflank those kind of attacks before they are mounted with smart allegations within the mechanics lien itself.
Ambiguity or Inconsistencies Within the Body of an Illinois Mechanics Lien Claim Can Subject the Lien Claim to Attack and Possible Invalidation. An Illinois mechanics lien claimant should rigorously review the contents of the mechanics lien form to ensure the statements made in the mechanics lien are consistent throughout the document and in related documents, like statutorily required Subcontractor’s Notices of Intent to Record Mechanics Lien Claim. This includes not just the necessary parties’ names, but also the description of the contract, of the work performed, the value of work completed, the dollars paid to date, and the dollars due, the property address and Permanent Identification Number (PIN) or PIN numbers. Ambiguity or inconsistency in Illinois mechanics lien claims may invalidate the lien claims. For example, one Illinois court invalidated a mechanics lien claim because the document the lien claimant recorded with the recorder of deeds contained an inaccurate description of the lien claimant itself. The lien claimant, a contractor, was correctly identified at the beginning of the Illinois mechanics lien claim document. However, in a clear typo, the signature block of the Illinois mechanics lien claim identified the signatory – the representative of the mechanics lien claimant contractor – as “the claimant.” The court treated the discrepancy between the claimant’s name in the beginning and end of the mechanics lien claim as an inconsistency that failed to satisfy the rigorous requirements of the Illinois Mechanics Lien Act. Similarly, a typo in a mechanics lien claim stated that the claimant’s last date of work was March 7, 1987, when the correct date was March 7, 1989, two years later. The lien claimant tried valiantly to explain away the clear typo. It also argued that nothing in the text of the Illinois Mechanics Lien Act required a completion date to be listed in the mechanics lien claim in the first place. In invalidating the mechanics lien, the court emphasized that the mechanics lien did, in fact, list a completion date – the wrong one – and that the rights of a subsequent purchaser of the real property would be trampled were the court to ignore the error. There are dozens of Illinois Mechanics Lien Act judicial decisions with comparable facts and outcomes. Maddeningly, there are dozens of Illinois judicial decisions where the court was more lenient and overlooked imperfections in Illinois mechanics lien claims. When I tell clients to proofread draft lien claims with an unmatched rigor – until their eyeballs fall out – I am only partly joking. We read and re-read and proofread every Illinois mechanics lien claim, until we are dizzy, before sending them for client signature or recording with the recorder of deeds.
Failing to Include a “Sufficiently Correct” Description of the Lot, Lots or Tracts of Land to Identify the Property Being Lien May Invalidate Illinois Mechanics Lien Claims. A properly drafted lien must contain an accurate and correct legal description of the property being liened. The Illinois Mechanics Lien Act mandates that that the description be “sufficiently correct” in identifying the property. “Sufficiently correct” is generally a question of fact, however, courts have held that if the correct legal description is recorded in a document such as a mortgage or deed in the county recorder’s office, any other description of the property may be insufficient to perfect a lien claim. For example, Illinois courts have held that a metes and bounds descriptions are insufficient to identify the property under the Illinois Mechanics Lien Act where a plat legal description was readily available to the lien claimant. Even where a claimant includes the correct legal description, it may not be enough to have a valid Illinois mechanics lien claim. If a lien claimant aims to place a lien on a particular condominium unit, it may not be good enough to merely include the legal description of the property underlying the condominium. A lien claimant may have to also refer to the condominium unit(s) established in the condominium plat, plus any related nuances. An Illinois mechanics lien claimant should also consider including the property to be liened’s Permanent Identification Number (PIN), in recorded Illinois mechanics lien claims. This is particularly important if a plat legal description of the property to be liened is unavailable. You may wish to ensure that the lien includes the PINs associated with the portions of the real property you want to lien. Many legal descriptions have multiple parcels and multiple PINs, and often certain PINs only correlate to certain parcels while having nothing to do with others. I know… its complex! And ‘getting it right’ is easier said than done! That is why if you are not sure whether the legal description you are considering using is accurate, the best practice may be to pay for a title report or other research into the real property records to do all you could to provide a “sufficiently correct” description of the property, under the Illinois Mechanics Lien Act.
Failing to Identify the Correct Date of the Contract in the Lien May Invalidate the Illinois Mechanics Lien Claim. You have probably heard the adage, “If you don’t have anything nice to say, don’t say anything at all.” Well, strangely, that saying has potential application to the question of whether or not to state the ‘contract date’ in Illinois mechanics lien claims. That is because, while the contract date is not necessarily required to be included in an Illinois mechanics lien claim for the lien to be valid, including the wrong contract date could, sometimes, come back to haunt you. The Illinois Mechanics Lien Act requires a lien claimant to include a brief statement of the claimant’s contract. However, the Illinois Mechanics Lien Act does not define or identify the components which make up the “brief statement of contract.” Generally, Illinois courts have interpreted the requirement to mean that a claim for a mechanics lien must accurately identify the parties and the work to be performed, subject to certain exceptions. However, some courts have held that Illinois mechanics lien claims which contain a materially incorrect description of the contract which gives rise to the mechanics lien may, sometimes, be invalid. In at least one case, a contract date set on the face of the mechanics lien document differed from the contract date set out in the allegations of the complaint to enforce, and foreclose upon, the mechanics lien failed to satisfy the “brief statement of the contract” requirement due to the contract date issue. On the other hand, if the Illinois mechanics lien claim had not included the contract date on the lien at all, in the allegations on the face of the mechanics lien, there is some argument that the mechanics lien would have – barely – complied with the Illinois Mechanics Lien Act. This is not to say you should not include the contract date when setting out the factual allegations necessary to make Illinois mechanics lien claims on the face of the lien claim document. On the contrary, you should strongly consider including as much relevant detail about the contract as possible to ensure that you are alleging a “sufficiently correct” contract – but when you do so, you may wish to ensure that the information set out in your Illinois mechanics lien claim is accurate and that the complaint to enforce the Illinois mechanics lien contains factual averments, like the details of the contract underlying the mechanics lien, which matches up with the contract date stated in the mechanics lien document itself. What’s the old adage, measure twice and cut once? Review your work, double check it, review it again, then review it once more. Did you accidentally type 2020 when it should have been 2021? Or did you accidentally type ‘May’ when you meant ‘March’? These common typos could make or break the validity of Illinois mechanics lien claims.
Failing to Identify the Last Date of Work May Invalidate Illinois Mechanics Lien Claims. Alleging the last date of the lien claimant’s work – also called the ‘completion date’ – is not a requirement identified the Illinois Mechanics Lien Act, itself, for a mechanics lien claim to be valid; however, that does not mean such an allegation is not required. One Illinois appellate court has held that, while the Illinois Mechanics Lien Act itself does not require lien claimants to allege their last date of work in a mechanics lien document, the requirement for a lien claimant to allege the completion date for the work to be included in the lien must be inferred as a requirement of valid Illinois mechanics lien claims – because without the requirement to allege a completion date, a person examining the recorded mechanics lien document would not necessarily know whether the time-sensitive requirements of the Illinois Mechanics Lien Act have been met. And this makes sense, right? If you are a lender and you, for example, receive a copy of a subcontractor’s claim for mechanics lien, you will want to know whether your mortgage interest in the property is now subordinate to that of the subcontractor’s lien claim. A subcontractor in Illinois who wants its Illinois mechanics lien claim to have a “priority” interest over the mortgage interest of a lender in the liened real property, or any “third party” beyond the property’s owner, must record their Illinois mechanics lien claim within four months of the completion date of the lien claimant’s work. If the lien claimant fails to record its lien in a timely manner, under the Illinois Mechanics Lien Act, the lien claimant will not necessarily have priority over the mortgage interest lender if the owner of the liened real property i sells the property. The lender, and potentially other third party interest holders, will have “priority” and will be in line to ‘scoop up’ the proceeds from the judicial sale of the liened property before the subcontractor has the right to collect any proceeds from the judicial sale before they are disbursed to other parties. This is why the four-month deadline for claimants to record Illinois mechanics lien claims is so important; particularly when there is a lender or third party involved. It is also the reason why one Illinois appellate court has reasoned that the requirement for Illinois mechanics lien claims to allege a completion date in their lien claim documents – while not expressly stated within the text of the Illinois Mechanics Lien Act – is nevertheless inferred, as a requirement of the Illinois Mechanics Lien Act, even though such a requirement is not expressly stated. Without a completion date, a third party cannot determine whether the mechanics lien claim was timely filed, and thus, enforceable against the third party. Other Illinois courts, however, have not adopted that approach. Other Illinois appellate courts have held that a lien claimant’s failure to include a completion date within the allegations of the mechanics lien document was not, by itself, a basis to invalidate an Illinois mechanics lien claim. That Illinois court relied on an Illinois Supreme Court decision which held that only the Illinois Mechanics Lien Act’s statutory requirements, which are expressly set out in the Illinois Mechanics Lien Act, need to be included as allegations within Illinois mechanics lien claims.
Failing to Record Illinois Mechanics Lien Claims Within Four Months of Completing Work Might Invalidate Your Lien Against Third Parties. To property perfect Illinois mechanics lien claims against a property owner or someone who falls into the category of a “third party,” you must satisfy all the requirement of Section 7 of the Illinois Mechanics Lien Act. And while every part of the Act typically must be followed scrupulously, Section 7 may be among the most important. Among other things, Section 7 of the Illinois Mechanics Lien Act requires a mechanics lien claimant seeking to assert a lien claim against third parties such as a creditor, incumbrancer, or third party purchaser to record a claim of mechanics lien, with the local recorder of deeds, within four months of last completing the work on the project to be included in the mechanics lien claim. As discussed above, failing to record Illinois mechanics lien claims within four months of the last day of work means your lien claim might not have ‘priority’ over the mortgage interest of a lender in the real property subject to your competing interests. If the property owner is forced to sell the property, in a judicial sale following a mechanics lien and mortgage foreclosure action, you might be last in line to receive any proceeds that remain from the sale (which is a concern mostly if the value of the real property results in judicial sale proceeds which are insufficient to satisfy the claims of all parties who have competing mechanics liens, mortgage claims, or other interests in the real property). So, how do you protect yourself when making Illinois mechanics lien claims? First, you need to determine your actual last date of ‘lienable’ work (because not all work is substantial enough to ‘reset the clock’ on your deadlines). In general, the last day of work is the last day substantive work was performed under the contract. In other words, substantial work for which you would, can could, charge your client fees under the contract. Ideally this would be part of the base scope of work of your design or construction contract, but work which is the subject of disputed change orders can also count as the last date of work in some cases. Warranty work, punch list work and work to correct defects in the work required by contract do not necessarily extend the last day of work for the purposes of the Illinois Mechanics Lien Act. The issue is really fact-specific, project-specific, and contract-specific. Likewise, trivial work like repairs or minor changes will not necessarily extend the time for filing Illinois mechanics lien claims. Substantial work at the request of the owner or your upstream client, however, may be ‘enough’ to qualify as your last date of substantial work and thereby extend the date of completion for purposes of calculating your deadlines under the Illinois Mechanics Lien Act. Whichever way you elect to determine your last date of work, consider making that determination based on contemporaneously-created project documents, like daily logs or timesheets, so if your last date of work is challenged by another party who wishes to show that your mechanics lien claim is untimely, you have the documentation to support the allegations in your lien claim. One of the most common and reliable ways to determine your last day of work is to review your labor time sheets. Often, the contain not just dates, but descriptions of activities, whether they are task or job codes or a narrative, which supplies certain important detail. What work was being performed? Who performed that work? Was it contract work? Was it punch list work? Finding the last day you completed substantive contract work, and using that as the last day of work alleged in the mechanics lien, is one good strategy. This is one of the many reasons good recordkeeping is so important in the construction industry. Often, contractors who did not anticipate, when the work was being done, that they would be involved in later mechanics lien foreclosure litigation over that work, are forced to take a guess or go off memory to determine their last day of work with no documentation to support it. Owners and third parties will often fight tooth and nail to push that date back as far as possible if you recorded your lien remotely close to the four-month deadline. That is bad, even if your argument and your last date of work, are determined sufficient to support the mechanics lien claim – because you may have to litigate for years over the issue before it is resolved, meaning your lien will not have led to a quick settlement and payment. This is another reason you should not wait file your Illinois mechanics lien claim. Once you have an inkling that you might not get paid, or might not get paid promptly, consider consulting a construction attorney to determine, and to get well ahead of, your deadlines for recording Illinois mechanics lien claims. If you wait until the final days remaining on your deadlines to assert a mechanics lien, you risk not being able to find a lawyer willing to rush to meet a difficult and short mechanics lien deadline, or having your lien invalidated by a party that keeps better records then you do! Get those liens timely recorded!
Amending an Illinois Mechanics Lien Claim Outside of the Four-Month Deadline Might Invalidate Your Lien Against Third Parties. Okay, so you meticulously followed the Illinois Mechanics Lien Act and recorded an Illinois mechanics lien claim within four months of the date when you last completed substantive contract work for which you have good, contemporaneously-created project records. Then something unexpected happens. Something that makes the information you swore under oath to be true, within your mechanics lien claim documents, no longer true. For example, if you received an interim payment after recording Illinois Mechanics Lien Claims, you might have a mechanics lien recorded with the local real property records that alleges you are owed more dollars than you are now owed. Alternately, perhaps the property was sold, resulting in a new project owner, or subdivided so it creates a new legal description for the real property. What do you do? Your first instinct might be to try fix the inaccuracy by recording an amended mechanics lien claim that contains the current accurate and true information – but this is one instinct you may, or may not, want to follow since amending Illinois mechanics lien claims can be fraught with peril, destroying the lien claim sometimes. There are a variety of reasons why you may want to amend a lien claim: increasing the dollar value of the mechanics lien claim based on additional work performed, decreasing the dollar value of the mechanics lien based on recent payments received, correcting a misidentified party described in your recorded lien claim, failing to identify a party who has an interest in the real property, which is subject to your lien claim, providing a better real property description, etc. While this is certainly not legal advice for you, I would urge you to step cautiously. Although you may be worried about the validity of your recorded mechanics lien document as it currently stands, amending Illinois mechanics lien claims sometimes have unintended and significant adverse consequences. When considering whether to amend a mechanics lien claim, one of the biggest factors to consider is whether you are still within the Illinois mechanics lien claim deadlines which would enable you consider amending the mechanics lien claim while still having the ability to allege and prove that your mechanics lien claim has ‘priority’ over the interests of third parties in the real property, such as a lender’s mortgage interest. Because lenders often have a large financial stake in the project – and a substantial claim against the real property, the value of which serves as collateral for the loan –those who assert Illinois mechanics lien claims might want to carefully consider whether an amendment might cause you to lose priority, i.e., leaving your place in priority line and allowing other parties to step ahead of you when courts distribute the proceeds of the sale of the property at a judicial sale. Imagine being in line for a rollercoaster for nearly two hours with your seven-year-old son only to discover that he will be a half inch short of the height requirement. What would you do? Well of course you do not let him on the ride… safety first, right? But let’s say in this poor analogy you know for absolute certainty he would be fine to ride, safely. Would you leave the line and waste all that time you waited? Or would you stuff his shoes with an extra pair of socks and take your chances he makes it on the ride? In a roundabout way, that is perhaps similar to the kind of decision you might need to consider making if you realize your mechanics lien claim may be defective. In the world of Illinois mechanics lien claims, amending your recorded mechanics lien claim document or, if a lawsuit was filed, Complaint to Foreclose Mechanics Lien, could equate to you leaving the line and wasting your time (and maybe money too). An amended Illinois mechanics lien claim might be treated much like a brand-new mechanics lien for the purposes of determining the relative ‘priority’ of the various parties in the proceeds from a judicial sale. And if you record amended Illinois mechanics lien claims on the opposite side of the various deadlines under the Illinois Mechanics Lien Act, the priority your mechanics lien claim once might enjoyed over the interests of other parties might be a ‘thing of the past’ and you might no longer be entitled to payment before other ‘higher priority’ third parties’ interests are satisfied – meaning you could be left with nothing. You might be better off seeing if the operator lets your son on the ride?
Failing to Provide an Adequate Description of the Contract May Invalidate Illinois Mechanics Lien Claims. Section 7 of the Illinois Mechanics Lien Act requires that a valid mechanics lien document contain a “brief statement” of the lien claimant’s contract, as lien claims spring from contract rights. Illinois courts have not created a test to determine what qualifies as a sufficient brief statement (and they probably never will, since the facts and eccentricates of each contract and project and mechanics lien are sufficiently different and unique to defy generalization). However, Illinois courts have made enough rulings on the question of what constitutes a sufficient “brief statement” of the lien claimant’s contract so that lawyers can try to interpret what a judge might be likely to believe satisfies this Section 7 requirement. While none of this is legal advice for you, here are some generalized do’s and dont’s when it comes to describing your contract when making Illinois mechanics lien claims. Do accurately identify the parties to the contract. An error in the parties’ names can be fatal to Illinois mechanics lien claims. Do state how the contract was formed (unless overriding concerns make providing that information not strategic). Was it a written contract that supports the mechanics lien? A verbal contract? A little bit of both? There is ALWAYS a certain element of legal judgment in play when making these decisions (which is why smart businesspeople in the design and construction industry hire lawyers to prepare Illinois mechanics lien claims, rather than the ‘cheapo’ lien preparation services which seldom get lien claims right). Sometimes less is more; particularly when considering whether to provide information which is not 100% required by the Illinois Mechanics Lien Act. For example, you may not wish to describe the contract which supports the mechanics lien claim as a ‘written’ contract if you lack the documentation to prove the existence of a written contract. Claiming a contract was written, when it was in fact verbal, could hypothetically invalidate Illinois mechanics lien claims, unless an exception applies. It is common practice to have a written contract but then agree to verbal change orders during the project. If this is the case, you may wish to consider whether it is strategic to state that in your recorded mechanics lien claim document. Tell the story accurately. Do not deviate from, or stretch, the truth. Do state the date of the contract in the recorded mechanics lien claim, but note that some consider the best practice to be using vague terms like “on or around” rather than an exact date, unless you are on solid footing regarding the date of the contract, or unless strategic considerations dictate otherwise. You want to consider giving yourself some wiggle room in case of an error in the information provided to you by your client. If the contract date is clearly stated in a written contract, you may instead want to consider using something like: “In a document bearing the date _____ ___, 2021, contractor contracted with…” unless strategy dictates otherwise. This way you are not stating your interpretation of the contract date, but instead letting the contract from which the mechanics lien rights spring to speak for itself. Do consider describing the kind of materials, labor, or services you furnished on the project in some detail. Be specific, unless strategic considerations dictate otherwise. You need not recite the entire scope of the contract, nor is it a wise decision to offer more information than is necessary, unless there is a reason for doing so – but give thoughtful consideration to how to provide enough information so it would be difficult for anyone to challenge your mechanics lien claim based on your description of the contract upon which the mechanics lien is based. And finally, do state the original amount of the contract and the amount of any change orders which caused the original amount to be adjusted, unless there is a strategic reason for omitting this kind of information, which is commonly found in Illinois mechanics lien claim. Every claim for a mechanics lien under the Illinois Mechanics Lien Act should be diligently scrutinized for any errors or omissions before recording that could be weaponized against you to invalidate your lien.
Failing to Assert that the Work Which Forms the Basis for Illinois Mechanics Lien Claims Was Substantially Performed Per the Contract; or That There is a Good Legal Justification Why It Was Not Completed. The Illinois Mechanics Lien Act exists, in part, to protect contractors, subcontractors and suppliers and ensure they are paid for the labor and materials furnished to improve the property. You should consider whether it is strategic to allege that you substantially completed the work required under your design or construction contract. If you did not complete your contract, consider whether it is strategic explain why. Perhaps the upstream contractor invoked a termination for convenience clause; perhaps you were no longer being paid for your work; or perhaps the project was delayed at no fault of your own – whatever the reason is you should consider whether it is wise or unwise, and necessary or unnecessary, to explain the same in Illinois mechanics lien claims. Often, a minimalist approach is worth considering. For example, you might consider alleging that the lien claimant substantially completed the work required under the contract, “…save that work the nonperformance of which is excused by other parties’ defaults.” If you decide it is strategic to omit such an allegation, still consider a minimal allegation – a few words – setting out that the work in the mechanics lien claim was substantially and satisfactorily performed in accordance with the contract. A lien claimant who has not substantially completed its contract, or has failed to complete its work due to its own breach of contract or other default, or a contractor unable to allege substantial performance of the work supporting the lien claim, might be adjudged to have no right to assert Illinois mechanics lien claims.
Improperly Recording a Single Illinois Mechanics Lien Claim in Aggregate on Multiple Parcels of Land With Different Owners. Design and construction projects located on two or more lots or tracts of land or involve more than one building may raise allocation and apportionment issues. Let’s say you performed work for a general contractor under a single contract to improve multiple units in a condominium building or a subdivision. And after you substantially complete your work, the general contractor fails to pay you. How do you go about recording a valid lien on the property(ies)? Can you record one mechanics lien claim? Or should you record separate liens for each property? These kinds of questions are not for the faint of heart. They go to the center of whether your mechanics lien claim will be valid or invalid, and you should strongly consider hiring a construction attorney to prepare Illinois mechanics lien claims for that reason. With the caveat that nothing in this post is legal advice for you, I will observe that Illinois courts have – under certain project-specific, contract-specific, and claimant-specific circumstances, which may differ from the facts relevant to your Illinois mechanics lien claims – held that were a contractor has completed its work on all of the lots or tracts of land within the four months before the date the claim for lien is recorded, the contractor should not have to allocate the dollar amount as to each lot or buildings if a single lien covering all lots is used. However, even if work on all lots was completed within four months of recording, apportioning the amounts due regarding each lot is sometimes best practice. This allows each owner to know what amount must be paid to release the lien attached to its lot. It is also at least arguably, under certain circumstances, the safest decision to consider apportioning the amounts due in the recorded mechanics lien claim in case an owner has grounds to contest your alleged completion date for the parcels, or other ‘multiple parcel’ like defenses or lines of attach. That way, under certain circumstances, perhaps some of the lien claim might be adjudicated to be valid, even if the lien is invalid regarding certain parcels. On the other hand, if you fail to apportion the amounts due, and your outside of four-month window for even one owner, your lien may be invalidated in its entirety. I cannot overstate the difficulty and importance of making ‘the best’ judgment calls when preparing the allegations to be included in Illinois mechanics lien claims. You really need the assistance of a construction attorney, unless you are willing to ‘roll the dice’ with a potentially invalid lien.
Failing to Adhere to Condition Precedents in a Contract Which Forms the Basis for Illinois Mechanics Lien Claims. A common provision that appears in a contract between a contractor and its downstream subcontractor is a “pay-when-paid” clause. In other words, payment to the downstream contractor is conditioned on the contractor receiving payment from the upstream contractor first. These clauses used to cause a great deal of trouble for subcontractors because unpaid subcontractors were not permitted to enforce their lien claims because, technically, no money was yet due. More recently, however, Illinois has enacted section 21(e) of the Illinois Mechanics Lien Act, which states that “[a]ny provision in a contract, agreement or understanding, when payment from a contractor to a subcontractor or supplier is conditioned upon receipt of the payment from any other party including a private or public owner, shall not be a defense by the party responsible for payment to a claim brought under Section 21, 22, 23, or 28 of this Act against the party.” However, there are other condition precedents within a contract that may be enforced before receiving payment. For example, Illinois courts have held that a contract which conditions a lien waiver be submitted before receiving payment is valid and gives the upstream contractor the right to withhold payment until it is received. A lien recorded before the lien claimant adhered to any true condition precedents set forth in its contract might be invalidated.
Failing to Include an Accurate Value of the Lienable Work Completed In Illinois Mechanics Lien Claims. You may only assert a mechanics lien claim for the dollar amounts you are owned because of the material, labor or services you furnished to improve the property. You cannot, in most cases, lien for work you have yet to perform or will not perform on the project. It may not necessarily matter if you were terminated for convenience, terminated for cause (which may entitle you to recover under a different cause of action), or if you abandoned the project before completing your contract. The value of your mechanics lien is usually directly related to the value of the work you provided to improve the property, but remains unpaid. The Illinois Mechanics Lien Act requires that a mechanics lien set forth the balance due in the lien claim. Before deciding on the dollar amount of your mechanics lien claim, you may wish to take a long look through your accounting records. Review the contract, the rates, the change orders, etc. and make sure the math works out. Double check the numbers again, reverse engineer the amounts to make sure that they add up both frontways and backways. Your goal here is to make sure you can prove the amount you are due when the times comes. It is also a good idea to record or log how you reached your lien amount – creating a spreadsheet you can refer to is always a good idea, plus it can do the math for you. Make sure you can prove not only the amounts you are due but amounts you have been paid or amounts unpaid for uncompleted work.
Failing to Include an Accurate Value of the Lienable Work Completed After Allowing All Credits in Illinois Mechanics Lien Claims. Okay, maybe this ought to be including in the paragraph above, but the Illinois Mechanics Lien Act is complicated and that I thought it necessary to highlight this point. As you know by now, a mechanics lien claim under the Illinois Mechanics Lien Act requires the lien claimant to state the dollar value of the balance due to the lien claimant under its contract – it is a statutory requirement to provide certain kinds of information along these lines. But another requirement also found in Section 7 of the Illinois Mechanics Lien Act is the requirement to state the amount you are crediting to those which you are liening the property against. i.e., the amount you have been paid to date. The statute uses the terms credits, and you should as well, because it is possible that you have credited your upstream contractor or the owner for something other than payment, such as a reduction in the contract price. Most of the time though it will mean the amount you have been paid so far. Your lien should read like an accounting statement. Take the amount of your original contract, add any contract adjustments such as change orders that increase or decrease the amount of the contract, then subtract any credits to arrive at the balance due. As much as you may not want to give the contractor or owner credit for anything, it’s important to have a valid lien claim, so don’t forget it.
Failing to Verify Illinois Mechanics Lien Claims, i.e., Failing to Sign Illinois Mechanics Lien Claims Under Oath and Stating That the Information Contained Within the Lien is True May Invalidate a Lien Claim. I’m guessing everyone reading this article is familiar with the act of perjury, i.e., the act of lying under oath. It is most often associated with oral testimony, however, perjury can also be committed in written form as well. Many documents either recorded or filed must be verified for truthfulness by the person asserting its claim. Section 7 of the Illinois Mechanics Lien Act requires that all mechanics liens, without exception, must be verified by an affidavit for the lien claim to be valid. The legislatures who wrote the Illinois Mechanics Lien Act included the need for verification to ensure that mechanics liens weren’t being used as a weapon to cloud title to property under false pretenses. Much like committing perjury during witness testimony, fabricating information in a lien claim can come with severe consequences – so don’t do it! Don’t be afraid to sign your name to a lien claim however if you believe the information contained within to be true, even if it later turns out to be erroneous. Just make sure to do your due diligence in preparing the lien, check your documents, check your math, do your homework to find the correct property owner(s) and lender(s), include the name of the party with whom you contracted, accurately describe the contract, state your last day of work, etc., and you’ll be confident when signing your name.
Knowingly Misrepresenting the Amount Due in Illinois Mechanics Lien Claims Can Not Only Invalidate Your Lien But Subject You to Claims of Fraud. Section 7 of the Illinois Mechanics Lien Act requires a lien claimant to attest to the balance due to satisfy the lien claim. Generally, and subject to the huge caveat that there is lots of court-made law and risk related to this complex issue, overstating the amount of a lien claim will not invalidate your claim. Your lien claim, however, might be invalidated if the opposition can show that the overstatement was intentional. Illinois courts have held that mere overstatement of a contractor’s claim for lien is insufficient, by itself, to prove an intent to defraud. For example, a party whose lien inadvertently fails to reflect a recent payment it received probably will not be held to have committed fraud if it cannot be inferred that the overstatement was intentional. Constructive fraud must be proved by additional evidence from which intent to deceive may be inferred. In other words, your opponent does not need your admission you ‘intentionally’ overstated the lien. The opposing party can prove your intent by drawing inferences from other evidence, at least sometimes. Likewise, overstatement of lien claims to include extra work was found not to be constructive fraud when the lien claimant reasonably believes that their change orders for extra work had been approved. When a lien claimant deliberately overstates the amount of a lien, the entire lien may be invalidated. Why would anyone then knowingly overstate the amount of their lien? Well, most often it is to gain leverage on the property owner. This is sometimes referred to as ‘pumping up a lien claim’ – and contractors often believe that a higher dollar figure will either garner more attention from the owner or is more likely to result in a bigger payment. However, the reward almost never outweighs the risk. A lien claimant found to intentionally overstate its lien claim might be held liable to pay the attorney’s fees of other parties. This could be a five, six or even seven-digit number! When you are considering the balance due, consult your accounting records and make sure you can prove your lien amount should it be questioned.
Failing to Have a Good Reason For Not Completing The Work May Invalidate Illinois Mechanics Lien Claims For Work Completed. A lien claimant must complete its work under the contract or have a good and legally adequate reason for failing to complete the work in order to have a valid mechanics lien under the Illinois Mechanics Lien Act. Put simply, a lien claimant might be unlikely to prevail if it records a mechanics lien claim on the property, even for work it completed, if it breached its contract or violated the Illinois Mechanics Lien Act. Let’s say for example, you are completing work under your contract as a general contractor. The owner comes to you and, under Section 5 of the Illinois Mechanics Lien Act, requests you provide a sworn statement listing all the subcontractors and suppliers performing work on the project. You fail to provide the sworn statement and the owner refuses to pay you for work you performed. Can you abandon the project and record a valid lien on the property for work you performed? The short answer is no (unless an exception applies). The long answer is also no (unless an exception applies). Section 5 of the Illinois Mechanics Lien Act states, “It shall be the duty of the contractor to give the owner, and the duty of the owner to require of the contractor, before the owner or his agent, architect, or superintendent shall pay or cause to be paid to the contractor or to his order any moneys or other consideration due or to become due to the contractor… a statement in writing, under oath or verified by affidavit, of the names and addresses of all parties furnishing labor, service, material, fixtures, apparatus or machinery, forms or form work and of the amounts due or to become due to each.” Therefore, your failure to provide the sworn statement gave the owner the right to seize payments to you for any work you performed on the project. Since you did not comply with the Illinois Mechanics Lien Act, you do not have a good reason to have not completed the work, and are thus, under this unique scenario, might not be entitled to make a mechanics lien claim against on the property. Likewise, if your contract mandates you provide lien waivers before payment and you fail to do so, you might – under some circumstances – have no right to lien on the property. However, when the owner or upstream contractor withholds payment based on a question of fact, such as defective work, you might be entitled to a lien on the property. If however the opposing party did not pay you because your work or services are defective in some material way, you might not have the right to bring Illinois mechanics lien claims.
An Owner That Relies on the General Contractors Sworn Statement Might Not Be Required to Pay Twice For Subcontractor’s Work. Section 5 of the Illinois Mechanics Lien Act sets forth the duties of the owner and the prime contractor. Section 5 serves the purpose of placing property owners on notice of all subcontractors or suppliers performing work on the project. It does not require an owner to pay the general contractor upon receipt of a sworn statement, but rather simply states that the owner must require the sworn statement before it pays the contractor any money. The purpose of this requirement is, in part, to put the owner on notice of potential subcontractor lien claims so that the owner can comply with the Illinois Mechanics Lien Act. I address this in several videos linked here and here, and in this linked blog post. Under the Illinois Mechanics Lien Act, an owner is usually protected from having to pay twice if it relies on the sworn statement provided by the general contractor. In other words, if an owner pays the general contractor for the amounts listed on its sworn statement, and the general contractor fails to pay its subcontractors, the owner might be protected from having to pay the same amount again to a subcontractor. On the other hand, an owner that pays a general contractor before obtaining a general contractor’s sworn statement might have to pay the subcontractor for the same work it had paid to the general contractors. Owners, make sure you receive a sworn statement from the general contractor before making a single payment otherwise you might have to pay twice for the same work. This stuff is complicated, and it is why many lenders require design and construction project payments to run through a title company’s construction escrow procedures. But, as I argue in this linked blog post, project owners and developers should not over-rely on a title insurer’s review of payment applications.
Failing to Send a Subcontractor’s 90-Day Notice Within 90 Days of Your Last Date of Work May Invalidate Your Illinois Mechanics Lien Claims. Section 24 of the Illinois Mechanics Lien Act applies to subcontractors not in contractual privity with the owner and functions to provide the owner(s) and lender(s) with notice it (a) furnished work on the property and (b) remains unpaid for the amount stated. To comply with Section 24, a subcontractor, within 90-days of its last date of work, must serve the owner of record and lender, if known, with notice of its work performed and amount due. To be clear, 90 days means just that – 90 days, it does not mean three months. It is a common pitfall of subcontractors to confuse 90 days with three months, particularly because another very important deadline in the Illinois Mechanics Lien Act has a four-month deadline, not 120 days. It’s all meant to confuse you, hahaha. Moreover, if a subcontractor fails to serve a 90 day notice under Section 24 of the Illinois Mechanics Lien Act, it is not necessarily game over. A 90-day notice is sometimes unnecessary if the subcontractor has been disclosed to the owner through the general contractors’ sworn statement. However, it’s not advisable to rely on such protection, especially if you are not in contractual privity with the general contractor. Section 24 gives subcontractors an alternative method of providing the owner with notice of their claim without having rely on the general contractors sworn statement. Where a subcontractor is not listed on a general contractor’s sworn statement, the 90-day notice requirement under Section 24 is usually a condition precedent to having a valid lien claim. Sending a notice 91 days after your last date of work because you confused 90 days with three months might invalidate your lien claim in its entirety. It is good business practice to send a 90 day notice routinely after you have substantially completed your contract work on a project. If you don’t want to send the notice immediately, don’t wait longer than 45 days. If 45 days passes and you still remain unpaid, send the notice and protect your interests.
Failure to Serve a 90-Day Notice on a Known Lender May Forfeit a Lien Claimant’s Right to Assert Illinois Mechanics Lien Claims Against the Lender. Section 24 of the Illinois Mechanics Lien Act applies to subcontractors not in contractual privity with the owner and functions to provide the owner(s) and lender(s) with notice it (a) furnished work on the property and (b) remains unpaid for the amount stated. To comply with Section 24, a subcontractor, within 90-days of its last date of work, must serve the owner of record and lender, if known, with notice of its work performed and amount due. A 90-day notice is sometimes unnecessary if the subcontractor has been disclosed to the owner through the general contractors’ sworn statement. However, it’s generally not advisable to rely on such protection, especially if you are not in contractual privity with the general contractor, since you might be putting your right to assert Illinois mechanics lien claims into the hands of another party which may, or may not, comply with the Illinois Mechanics Lien Act. If the lien claimant is relying on the 90-day notice as a basis for notice rather than a sworn statement, the notice must also be served on any known lender otherwise it will not be valid against the lender. The caveat “if known” does not mean if you – personally, and subjectively – happen to know. It usually is interpreted to mean that if, through a search of public records and other kinds of readily available due diligence, a reasonable person could ascertain whether a lender has a third party interest in the property, then you must provide them notice. It is critical you do your homework. A good place to start is searching for mortgages on the county recorders website. It is also best practice to pony up for a title search, performed by a reputable title company, just to be sure; particularly if you have a sizable lien claim. These are sometimes called “tract searches” and can cost as little as a few hundred dollars.
Suing to Enforce Illinois Mechanics Lien Claims in the Wrong County. The proper venue for a mechanics lien foreclosure action is the county in which the property is located. If suit is filed in the wrong county, the court may transfer it to the proper county even after the statute of limitations has run. However, it is less clear whether a federal court has the jurisdiction to preside over a mechanics lien foreclosure action. Recently, the Seventh Circuit Court of Appeals dismissed a mechanics lien claim brought in federal court. You should bring your action in state court in the county in which the property resides. A joint action under Section 28 of the Illinois Mechanics Lien Act is a special statutory action that is procedurally different from a foreclosure action under the same act, and therefore can be filed in any county where the general rules of venue would permit it, such as the county in which the defendant resides.
Failing to Send a Subcontractor’s 90-Day Notice Via Certified Mail, Return Receipt Requested and Restricted Delivery May Invalidate Illinois Mechanics Lien Claims. This is another issue where there are rules, and exceptions, and exceptions to the exceptions. But Section 24 of the Illinois Mechanics Lien Act applies to subcontractors not in contractual privity with the owner and functions to provide the owner(s) and lender(s) with notice it (a) furnished work on the property and (b) remains unpaid for the amount stated. To comply with Section 24, a subcontractor, within 90-days of its last date of work, must serve the owner of record and lender, if known, with notice of its work performed and amount due. This notice must be served by mail or be personally served upon the owner of record or his agent or architect, or the superintendent having charge of the building or improvement and to the lending agency, if known. If you mail your notice you must do so by certified mail, with return receipt requested, and delivery limited to addressee only. And because Illinois is a fact pleading state, a complaint to enforce a mechanics lien generally must allege how service was performed to show you complied with the Illinois Mechanics Lien Act. Failure to do so may invalidate your lien claim. If you failed to serve your 90-day notice in accordance with Section 24 of the Illinois Mechanics Lien Act, itis possible your lien will still be valid if you can show that notice was actually received. Illinois courts have overlooked technical deficiencies regarding notices when there is no dispute that the parties did in fact receive notice.
Failing to Name the Immediate Contractor With Whom the Lien Claimant Contracted In Illinois Mechanics Lien Claims. Having a contract to improve the property is an essential element to having a right to lien. The Illinois Mechanics Lien Act requires a description of the contract to be included in every claim for lien. Failure to accurately describe the contract may invalidate a lien claim. It logically follows then that to establish your right to lien you must name the party with whom you contracted; this is known as your immediate contractor. To be clear, it is usually unnecessary or required to name every other contractor in the contract chain with the owner. Illinois courts and legislatures understand that not all subcontractors or suppliers are privy to this information. It is best practice, however, if you know the name(s) of the other contractors in the chain of contract with the owner to include them in your mechanics lien.
Failing to Provide Notice of Nonpayment or Record Illinois Mechanics Lien Claims Before the Owner Pays the General Contractor. Yes, the deadline to record a mechanics lien is two years from the date the lien claimant last completed construction work. But to have priority over third parties such as mortgagees, purchasers and other encumbrancers, a lien claimant must record their lien within four months from the date the claimant last completed construction work. However, subcontractors who follow all the requirements of the Illinois Mechanics Lien Act may still find themselves unable to recover from the owner if they wait too long to provide the owner notice of an outstanding balance due for work they performed. On private projects in Illinois, courts have held that a subcontractor’s lien is limited to the amounts due its immediate contractor when the notice of claim for lien is given if the owner has adhered to the requirements of the Illinois Mechanics Lien Act. In other words, if prior to making payments to the general contractor the owner complied with its obligations under the Illinois Mechanics Lien Act, the lien claimant might not be able to collect the balance due from the owner. This is a protection offered to owners so they will not have to pay twice for the same work, as I discuss in this linked video. The Illinois Mechanics Lien Act requires owners, once they are notified of an outstanding balance, to hold those funds in trust and not pay the general contractor or any other party until proof of payment to the sub-subcontractor is received (unless exceptions to this rule apply). Therefore, it is critical, if you are not receiving payments for amounts due, to provide your notice or record a lien as soon as possible. Even if you follow all the rules, you may still have no path to recovery from the owner if you wait too long to provide notice.
An Owner That Fails to Adhere to the Illinois Mechanics Lien Act May Have to Pay Twice For the Same Work. On the flipside, an owner that makes payment to its general contractor after failing to adhere to the Illinois Mechanics Lien Act, gains no protection against double payment if the general contractor fails to pay its subcontractor or a subcontractor fails to pay its sub-subcontractor. Double payment means having to pay twice for the same work, as I discuss in this linked video. For example, Section 5 of the Illinois Mechanics Lien Act requires that an owner demand from its general contractor, and a general contractor must provide, a sworn statement listing all the subcontractors furnishing work to the project. If the owner requests and the general contractor provides the sworn statement, then an owner, who is without notice of a balance owed to a subcontractor not listed on the sworn statement, is usually protected from having to pay twice for the same work. However, if the owner fails to request the sworn statement and the general contractor does not provide one, then the owner might be afforded no protection and might have to pay the subcontractor for work it has already paid to the general contractor. And an owner that receives notice of amounts due to a subcontractor, and nevertheless decides to pay the general contractor those sums, might be subject to double payment to the subcontractor. In order for owner to be afforded the protections of the Illinois Mechanics Lien Act it must comply with the requirements contained within.
A Subcontractor Performing Work on an Owner-Occupied Single-Family Residence Who Fails to Serve a 60-Day Notice May Have No Right to Lien the Property. Sections 5 and 21 of the Illinois Mechanics Lien Act require that a subcontractor furnishing materials or labor for an existing owner-occupied, single-family residence, notify the occupant, or its agent, that it is supplying materials or labor to the project. This notice must be served within 60 days of commencing work or delivering materials to the project. This requirement is in additional to the 90-day notice that must be served after the subcontractor has completed its work on the project. However, in certain situations, failure to serve a 60-day notice might not be fatal to a subcontractor’s lien claim if the subcontractor also serves its 90-day notice. In this circumstance, the lien is valid but only to the extent that the owner has not been prejudiced. That is, if the owner has not already paid the general contractor for the subcontractor’s work when the subcontractor served its 90-day notice, and the enforcement of such lien would not require the owner to pay twice for the same work. Illinois courts have not ruled on whether a Section 5 sworn statement can be used as notice in lieu of a subcontractor failing to provide its 60-day notice and therefore it generally not advisable to rely on such sworn statement, subject to certain exceptions.
Failing to Include All of the Information as Required By the Illinois Mechanics Lien Act in a Subcontractor’s 60-Day Owner-Occupied Subcontractor Notice. If you’ve read this far it should be clear that it is critical to comply with the Illinois Mechanics Lien Act in every aspect to ensure that you have a valid lien claim. Illinois courts are notorious for dismissing lien claims when the claimant failed to comply strictly with the Act; and that includes not only what you do, but also how you do it. For example, sending a 60-day notice to the occupant, or its agent, when working on an owner-occupied single-family residence does not simply mean you mail a letter stating “Hey there! I’m working on your home.” The Illinois Mechanics Lien Act sets forth very specific directions with regard to what must be included in the letter for it to be considered in compliance with the Act. In the case of the 60-day notice, for a lien claimant to show compliance, a subcontractor must include its legal business name, address, the date he or she started to work or to deliver materials, the type of work done and to be done or the type of materials delivered or to be delivered, and the name of the contractor requesting the work. Failing to perform these statutory obligations may invalidate your lien claim should you fail to be paid on the project. Here is one example of the possible content of this notice (which should be adapted to your lien, with the advice of your attorney, not recited verbatim):
You are hereby notified that [name and address of sub-subcontractor] has been engaged and employed by [name and address of subcontractor], a subcontractor performing work on your property pursuant to a contract with [name and address of general contractor], contractor, on 2021, to [describe nature of the work performed and to be performed or materials supplied and to be supplied] and did accordingly on 2021, [start the delivery of said materials and supplies] [start the labor and services] and will continue [to deliver said materials or supplies] [to perform services] all for your premises, owned and occupied by you at [address and, if possible, legal description and Permanent Identification Number], and that the total contract price for said materials and supplies is $____________. The undersigned claims a lien therefor against the above-described property, against your interest therein, and against any money due from you to said contractor.
Failing to Provide the Statutory Warning in the 60-Day Owner-Occupied Subcontractor Notice When Making Illinois Mechanics Lien Claims. Generally, homeowners are not as familiar with the Illinois Mechanics Lien Act as their commercial counterparts, and therefore, the Act requires, for the protection of the owner and the subcontractor, the subcontractor to contain within its notice a specific warning regarding payment and lien waivers. This warning must be in at least 10-point bold face type font and state the following language, verbatim:
“NOTICE TO OWNER, the subcontractor providing this notice has performed work for or delivered materials to your home improvement contractor. These services or materials are being used in the improvements to your residence and entitle the subcontractor to file a lien against your residence if the services or materials are not paid for by your home improvement contractor. A lien waiver will be provided to your contractor when the subcontractor is paid, and you are urged to request this waiver from your contractor when payment for your home improvements.”
Failure to provide this warning may invalid your lien claim should the 60-day notice be a condition precedent to your right to a valid mechanics lien claim.
Failing To Serve Your 60-Day Notice in the Manner Which is Required When Making Illinois Mechanics Lien Claims. Besides setting forth when the 60-day notice must be sent and included within it, the Illinois Mechanics Lien Act also instructs the subcontractor on the delivery methods acceptable for service of such notice. The subcontractor must either personally serve the occupant of the residence or send the notice by certified mail, return receipt requested, restricted delivery addressed to the occupant or his or her agent.
Failing to Record a Lien Within Two Years of Your Last Date of Work When Making Illinois Mechanics Lien Claims. As we discussed, to have priority over third parties, a contractor must record its lien within four months of its last date of work. However, even if four months has passed, it doesn’t mean you have forfeited your lien rights. Pursuant to the Illinois Mechanics Lien Act, a claimant has two years from its last date of work to record a lien on the property. Depending on the property, a lien recorded after four months may hold as much weight as a lien recorded within four months. A lien recorded within two years but outside of the four-month window means that the claimant can only record its lien against the owner and not against any third party such as a lender. But what if there is no lender? If no lender exists and there are no third party purchasers, then a lien recorded outside of the four-month window is just as good as a lien recorded within the four-month window. Even if there is a lender, a contractor may want to consider recording a lien on the property simply to gain leverage over the owner to get paid what it is justly due. Perhaps the owner wishes to sell the property or refinance the property, the lien can still prevent such actions, forcing the owner to address the lien you have recorded. Recording a lien is a relatively inexpensive process compared to the potential recovery, so even if you miss the four-month window, you will want to make sure you have recorded your lien before the two-year deadline has expired.
Failing to File Suit to Enforce Your Lien Within Two Years of Your Last Date of Work When Making Illinois Mechanics Lien Claims. Recording a lien without the intention of enforcing it is a strategy many employ to pressure an owner or a general contractor in an effort to get paid. However, if the claim is large enough you may want to consider enforcing your lien and you don’t have forever to do so. Mechanics liens are only effective so long as the lien can be enforced by the lien claimant. That is, once the lien can no longer be enforced the lien no longer holds leverage over the owner. The amount of time a lien claimant has from the time he or she records its lien to the time it must enforce it will vary from lien to lien. This is because the Illinois Mechanics Lien Act puts a strict deadline of two years from the lien claimants last date of work to enforce its lien. In some cases, a lien claimant will record its lien a month after its last date of work and have 23 months for which to enforce it, other times a lien claimant may wait a year to record its lien and have only one year to enforce it. The time to enforce a mechanics lien in Illinois is strict cannot be extended. Managing your lien deadlines is a critical element to preserving your mechanics lien rights and one an experienced construction attorney can help you with.
Failure to Hold the Proper Licenses May Void the Contract and Therefore Invalidate Illinois Mechanics Lien Claims. A contract must be legally enforceable to support a mechanics lien. A contract that is void due to violating Illinois law cannot support a mechanics lien. Architects must be licensed in Illinois to perform architectural services, and therefore, when an unlicensed architect contracts to perform services, the contract is sometimes considered void and unenforceable. In one case, the court ruled that the lien claimant lacked the legal capacity to sue to foreclose on its mechanics lien because the lien claimant was an unlicensed architect. However, not all contractors must be licensed to enter into a valid contract even if the law penalizes those that do. Where performing work without a license is a violation of law subject to only a penalty, a court might be unlikely to rule that the contract is void and a claimant’s lien unenforceable. For example, a contract for an unlicensed mason who engages in masonry work will not be invalidated because it did not have a masonry license even though performing the work without one subjects the mason to a statutory penalty. Likewise, an unlicensed electrician who performs work under a valid permit might also have an enforceable mechanics lien. The Illinois Supreme Court has weighed in on this topic holding that the fact there has been a statutory violation does not, in itself, automatically render a contract unenforceable: “The contract’s validity should be judged as of the date of its making, and unless the agreement necessarily contemplates an illegal act or necessarily involves a violation of law, the mere fact that it was performed in violation of law will not invalidate the resulting lien if not seriously injurious to the public order.”
Waiting Too Long to Record Illinois Mechanics Lien Claims Even if You Are Still Performing Work on the Project Could Invalidate Your Right to Lien. In my opinion, Section 6 of the Illinois Mechanics Lien Act is among the most poorly written sections of the entire statute. You could read it 100 times and still not understand what it is telling you. Thankfully, I’m here to guide you. Section 6 states that a lien claimant cannot lien for work it completed more than three years ago on residential property and more than five years ago on all other property, even if the prospective lien claimant’s work is ongoing to this day. In other words, even though you are still working on the project, and you typically have two years from your last date of work to record a lien on the property, if you haven’t recorded a lien for work you performed three years prior (on residential property) or five years prior (on all other property) than you have forfeited your right to lien for that work. While this may seem unfair, remember that you’ve had three (or five) years to file a lien for work you have yet to paid on and you failed to do so. It is important to note that if the work for which you seek payment (as distinct from the work for which it was paid) was performed within the last three (or five) years, that work remains lienable even if the unpaid work performed more than three (or five) years ago is not.
Failing to Commence Suit to Enforce Your Illinois Mechanics Lien in Claims Response to a Section 34 Demand. Section 34 of the Illinois Mechanics Lien Act allows an owner to make a demand upon the lien claimant to sue to enforce its lien and if the lien claimant does not sue within 30 days, the lien claimant has forfeited its right to enforce its lien claim. I like to think of a section 34 demand like a poker player calling the bluff of its opponent. Avid poker players know that a strong bet can be an indication of either a strong hand or a weak hand. When someone makes a big bet with a weak hand it is called a “bluff.” A good poker player may be able to sense when the other player is bluffing and will call or even raise the bet forcing the bluffing player to decide whether to stay in the hand or fold his or her cards. This is generally how a section 34 demand works. If a lien claimant has based its lien claim on weak allegations or if the owner doesn’t believe the claimant would be willing to incur the costs to sue, then it may call the lien claimants bluff by sending a section 34 demand. If you are the lien claimant and you receive a section 34 demand you have a decision to make. Either you sue within 30 days or you forfeit your right to the lien. There are many factors that might go into a decision to sue or not sue. For starters, the cost to sue maybe prohibitive for you financially, or perhaps you decide not to put good money after bad, or perhaps the claim is too small you make the business decision to let the claim go and write off your losses instead. However, if you are sitting on a good claim worthy of a lawsuit, it is imperative you sue within 30 days from the date the notice was received. If you put it aside and take no action, on day 31 your lien is no longer enforceable, and you might lose all the leverage having a mechanics lien provides.
Not All Work Entitles a Claimant to a Right to Illinois Mechanics Lien Claims Under the Illinois Mechanics Lien Act. The amount of different work that the Illinois Mechanics Lien Act allows to be liened is seemingly endless. Section 1(b) of the Illinois Mechanics Lien Act specifically identifies persons entitled to a mechanics lien. Generally, persons entitled to a mechanics lien for their services performed in accordance with the Mechanics Lien Act are those who improve property in the process of design or construction where cement, concrete, or like material is used for or in the building, altering, repairing, or ornamenting of any house or other building, walk or sidewalk, driveway, fence, or adjoining sidewalk, street, or alley; do fill, sod, or excavating work; do landscaping work; raise or lower any house or structure thereon or remove a house or structure from a parcel of land a contractor or other construction professional to lien for most work it contributes to the improvement of real estate. For example, a construction manager can record a lien for unpaid fees it earned managing a project; an architect has lien rights for its architectural services, structural engineers have lien rights, so do land surveyors, interior designer, and property managers; those that perform services such as a superintendent, supervisor, timekeeper, mechanic, or laborer also have lien rights; and of course, all material or machinery suppliers who deliver materials and supplies to the project site. Although the list is long, it is not infinite. There is work that prohibited from being liened. For example, repair and maintenance services such as cutting the lawn or fixing the furnace is not lienable work. Lenders who loan the money so owners can fund the project also do not have lien rights under the Illinois Mechanics Lien Act.
The ”Lienability” of Work Performed By Architects, Engineers, Surveyors and Other Construction Professionals Are Not Limitless. Section 1 of the Illinois Mechanics Lien Act authorizes liens for architects, structural engineers, professional engineers, land surveyors, and property managers for services furnished for the purpose of improving the land. These liens exist even if the services performed are furnished before construction begins. The services do not necessarily have to directly improve the land if the services are furnished for the purpose of improving the land. There are limits however on the lienability of an architect’s, engineer’s, or surveyor’s services. Services in preparing drawings not for improving a lot but only to provide a prospective purchaser with information showing the possibilities of such an improvement are not lienable. Also, the amount of the compensation for the services must be ascertainable. A person who contracts to develop or who performs the services of a developer has no lien for development services because these are not either for the purpose of improving the land or to manage a structure on the land. Moreover, the services rendered must be within the scope of the lien claimant’s contract. For example, paying real estate taxes while managing a structure under construction is not a lienable service. The service must be for improving the property. Paying real estate taxes does not constitute furnishing services for the purpose of improving the land.
Illinois Mechanics Lien Claims Cannot Attach to a Street or Public Way. Work performed on a street are not lienable services. If work performed on a street physically connected to adjacent property privately owned, then that adjacent property is subject to a mechanics lien for the work on the street. However, where there is no physical connection to the adjacent land, there might be no right to lien the adjacent property. This rule applies even if the street is owned by private parties. Land platted as a street cannot be liened. Work performed on an easement or sidewalk might only be lienable if the work was performed to benefit the adjacent land, in which case, the lien would be valid as to that adjacent property. If you are unsure whether the work, you performed is a lienable service its best practice to contact an experienced construction attorney.
Filing Illinois Mechanics Lien Claims For Defective or Incomplete Work May Invalidate the Entire Lien Claim. A contractor is usually only entitled to lien for work it has satisfactorily performed. It goes without saying (yet I’m going to say it here anyways) that it will be the public position of all lien claimants that their work was performed satisfactorily; however, if a lien claimant knowingly records a lien for work it knows is defective or knows it did not complete, it risks invalidating the entire lien claim. This is equivalent to knowingly overstating the lien amount, which could result in sanctions or a judgment awarding attorneys’ fees to the opposing party. Whether work is defective, or incomplete is a question of fact for the judge or jury, however, if the opposing party can show you knew the work was incomplete or defective you may lose your right to be paid for work you completed correctly. For example, let’s say that you performed roofing work on a condominium building. At the end of the project, the condo association points out gaps in the roof and seams becoming unsealed. You agree to fix your defective work but never do. As a result, the condo association refuses to pay you the remaining amount of the contract. You then record a lien on the property for the full amount. The judge or jury may hold you knew the work was defective when you agreed to cure the defects but failed to do so before liening the property for the full amount of the contract. In this case, it is possible that your entire lien claim becomes invalid. One of the keys to a successful lien claim is being able to support all the allegations made in the mechanics lien claim.
In Order For Illinois Mechanics Lien Claims to Be Valid, the Work Performed Must Have Been For the Benefit of the Owner. The purpose of the Illinois Mechanics Lien Act is to allow a lien on property which has been improved for the benefit of the owner and when the value of that property has increased, or the conditions have improved by the labor, materials or services provided for by contractors or other construction professionals as defined with the Act. An individual or entity that has furnished labor, materials or services that does not increase the value of the property, or improved its conditions, did not provide a benefit to the owner, and likely will not be entitled to a right of a lien. The concept of improving the property’s value and/or conditions is called the enhancement doctrine. The Illinois Mechanics Lien Act and the courts which interpret it have attempted to lay the ground rules regarding what work enhances the property and what work does not – and it can be tricky. For example, materials delivered to the property but are never incorporated into the project might entitle the material supplier or contractor to a right to lien. Additionally, architects or engineers who provide design services that don’t physically enhance the property have a right to lien. Even in the case where the drawings or designed are not used by the owner or if the owner cancels the project in its entirety. So long as they are not at fault and provided satisfactory services under contract with the owner, designers have a right to lien whether or not their designs are incorporated into the project. The Illinois Mechanics Lien Act, and the judges which interpret it, can sometimes be liberal regarding who is entitled to a lien so long as the work that was performed to benefit the owner, i.e., increased the value or conditions of the property.
A Contractual Relationship is an Essential Element to the Right to Lien. Performing Work Without a Contract Will Invalidate Illinois Mechanics Lien Claims. The right to lien is inherent in every contract between an owner and a contractor to provide services to improve the value of the property. The right to lien is created by the Illinois Mechanics Lien Act, not by contract, however a contract is an essential element to the creation of any valid lien under the Act. Now, this does not necessarily need to be a written contract. But you need some kind of legally enforceable contract, even an oral one. An individual or entity that performs services without a contract will probably not be afford a right to lien. For example, in one Illinois lawsuit, services rendered to facilitate the sale of a home without a contract did not create a right to lien, and instead was viewed as a gift of the party provide such services. A contract can be written or oral, expressed or implied. Understandably, an express written contract is the strongest evidence that a right to lien exists, however, a party that enters into an oral contract has just as much right to a lien as does someone who signs a written contract. With an oral contract, the right to lien could depend on the strength of your evidence that a contract was formed. Such evidence could include the labor having been performed without objection, acceptance of work, and payments made by the owner or immediate contractor. With subcontractors, the right to lien depends also on the contract between the owner and the general contractor. If there is no contract between the owner and the general contractor, then a subcontractor or supplier has no right to lien even if they have a contract to perform work.
The Prime Contract Must Be With the Owner, or One Knowingly Permitted By the Owner to Enter Into a Contract, For the Improvement of Land or Illinois Mechanics Lien Claims Might Be Invalid. The general contractor’s contract must be with the owner of the property or someone who is knowingly permitted by the owner to contract for the property’s improvements for a right to lien to exist for any individual or entities performing work on the project. But what exactly is “knowingly permitted” and how is that defined? “Knowingly permitted” is understood as being generally aware of and consenting to the initiation of improvements on the property. The concept is grounded in the idea that a property owner cannot simply stand by, without objection, and watch its property being improved and later claim it is not responsible for paying those that performed said improvements. Where an owner is not the person or entity which contracted with the general contractor, the owner is sometimes considered to have knowingly permitted the work to be performed where it knew of the work being performed, failed to object, and accepted the benefits of the improvement. Examples include: (1) when an owner visits the property while the work is ongoing and makes no objection; (2) when the owner manages the property through an agent and the agent knew work was being done but made no objection; and (3) where an owner knowingly permits its lessee to contract for improvements to the property through a lease agreement which authorizes the lessee to make improvements at its own expense. However, where an owner did not know of the improvement, it did not knowingly permit it, and its interest in the property is not subject to a mechanics lien claim. This is commonly found where extra work is performed beyond the scope of the original contract. Even if the owner contracts with a contractor to perform improvements, if the owner did not consent to specific extra work, the owner might not be held responsible to pay for the extra work, and therefore, the contractor has no right to lien for the work. In sum, make sure there exists a contract between contractor and owner, or one knowingly permitted by the owner to contract for the improvements before recording your lien claim, and preferably before you furnish any labor, materials, or services to the project, and be diligent about signed written change orders to maximize your lien claim in the case of nonpayment.
Failing to Adequately Describe the Work Performed May Invalidate Your Illinois Mechanics Lien Claims. Section 7 of the Illinois Mechanics Lien Act requires that for a lien claim to be valid, the claimant must describe the work performed under its contract. This also includes any extra work performed at the direction or request of the owner or the immediate contractor. If the lien claim is based on a written contract or change orders, in the case of extra work, the description should match the scope of work identified in the contract. It doesn’t have to be verbatim but should be close enough that a judge reviewing a challenge to the lien can easily identify that the work being lien matches the contract on which the lien is based. To be clear, the description need not be so detailed that you need to worry about including every single component of your work, it only needs to be as descriptive as necessary to match up with the scope of work in the contract. Describing work not identified or implied by the contract or change order, such as conflating work on another project, could become problematic as incorrectly identifying the work may invalidate your entire lien claim. This isn’t meant to induce fear or anxiety, but rather to emphasize the importance of accurately identifying the work you performed. If you are not experienced with drafting mechanics liens, it is best to seek help from an experienced construction attorney.
All Actions to Foreclose on Illinois Mechanics Lien Claims Must Be Joined in a Single Chancery Proceeding. Section 11(b) of the Illinois Mechanic Lien Act requires that “[e]ach claimant shall make as parties to its pleading (hereinafter called “necessary parties”) the owner of the premises, the contractor, all persons in the chain of contracts between the claimant and the owner, all persons who have asserted or may assert liens against the premises under this Act, and any other person against whose interest in the premises the claimant asserts a claim.” This section ensures that all parties interested in the property are joined in a single action so all equities can be adjusted and that if an order is entered to sell the property, the order properly distributes all the proceeds of the sale. Failing to join a necessary party may cause the foreclosure action to be dismissed.
A Foreclosure Complaint Must Allege All the Facts that Must Be Proved in Order to Establish a Right to Lien – Failing to Do So Might Invalidate Illinois Mechanics Lien Claims. Section 11 of the Illinois Mechanics Lien Act sets forth the allegations necessary for a properly pleaded mechanics lien foreclosure action. They are: (1) a brief statement of the contract or contracts to which the claimant asserting a claim for lien in the pleading is a party and by the terms of which the claimant is employed to furnish lienable services or material for the property, (2) the date when the contract or contracts were dated or entered into, (3) the date on which the claimant’s work was last performed, (4) the amount due and unpaid to the claimant, (5) a description of the property, and (6) other facts as may be necessary for a full understanding of the rights of the parties such that the claimant performed the work pursuant to the contract or had a valid excuse for its nonperformance. Many of these requirements are the same requirements necessary for a valid lien claim, but it’s important to note that simply relying on or attaching the lien to the lawsuit isn’t enough, these facts must also be alleged within the foreclosure action otherwise the action may be dismissed.
In a Scenario Where There Are Multiple Lien Claimants Against a Property, Special Considerations Should Be Taken Before Agreeing to Share the Same Counsel. Lien claimants with multiple claims against the same property can join in the same lawsuit and can share one attorney. However, having a single attorney representing multiple claimants can be complicated. First, the attorney must check to see if there is an actual conflict between the parties. Naturally, there might likely be a conflict of interest as all lien claimants are seeking to recover from the same pot of cash, however, that is not necessarily the deciding factor as to whether an attorney can represent multiple claimants. The attorney must consider if there exists an actual conflict of interest that will prevent him or her from representing each client equally. For example, an attorney should carefully examine whether each lien is equally valid against third parties. If some lien claims are valid against third parties and others are not, there is an actual conflict because one party has priority over the other, and the attorney should not represent conflicting interests. If the attorney decides no actual conflict would prevent him or her from representing multiple claimants, it should seek informed consent from the parties. Lien claimants might also want to consider whether sharing an attorney with other lien claimants is in their best interests. Some of these considerations could include whether the attorney will work as hard to recover the amount your owed as he may another with a higher lien claim, or whether you want to sue other lien claimants for other causes of action such as breach of contract, or whether your claim could be settled more easily if you had your own attorney since your lien claim may be a fraction only of the others. There are some benefits to consider as well. For example, sharing an attorney also means sharing the cost burden hiring your own attorney. Let’s say you have a $7,000 lien claim, you might not have the will to sue to enforce that lien because the cost to pursue the lawsuit might be more than your potential reward. On the other hand, if you join with other claimants, the individual claims combined may equal a larger claim worth pursuing if all claimants are sharing the burden of attorney’s fees.
Verbal Contracts Create a Claimants’ Right to Illinois Mechanics Lien Claims; However, They Must Be Properly Alleged So as to Create Evidence of a Contract. In the eyes of the Illinois Mechanics Lien Act, verbal contracts hold the same weight as written contracts, however, the allegations that must be plead in enforcing such contract will be different since you cannot simply attach a written contract to the complaint. In order to prove that a contract exists, it is necessary to produce evidence of an agreement between the parties. This can be done by proving that a written document containing the terms was consented to by the parties or through verbal testimony establishing an offer, acceptance, and consideration or other evidence showing that an agreement exists. If the contract is written and signed or is based on an exchange of documents, proof of execution or transmission and receipt of the exchanged documents will prove the contract. However, if the contract is verbal none of these documents may exist, yet a lien claimant is still required to produce evidence showing there was a contract to furnish services on the project. For example, perhaps labor was performed without objection, or perhaps materials were supplied and incorporated in the project, or maybe you have receipt showing payment for the labor or materials. Unless the contract requires a specific way that acceptance has to be manifested, acceptance may usually be by any reasonable means.
Automatic Stays in Bankruptcy Do Not Always Toll the Time With Which a Claimant Has to Send a Statutory Notice or Record its Illinois Mechanics Lien Claim. As you probably know by now, the Illinois Mechanics Lien Act is strictly construed, and the deadlines contained therein are strictly followed. Even being one day late can invalidate your right to a mechanics lien. However, if the owner files for bankruptcy, deadlines with regard to enforcing your mechanics lien can toll – meaning the deadlines stated in the Illinois Mechanics Lien Act will usually not apply. For example, a lien claimant which receives a section 34 demand after the owner has filed for bankruptcy might not be held to the statutory 30-day period to sue because the Illinois bankrupt code might prohibit the claimant from filing suit. Likewise, if the two-year statutory limit on enforcing a mechanics lien has run after the owner filed for bankruptcy, the lien claimant might still be able to file suit after the stay has been lifted. That said, not all deadlines will be tolled due to the owner filing for bankruptcy. For example, an automatic stay might not provide relief from deadlines which do not relate to enforcing a mechanic lien, including notice and recordation deadlines, such as, the four-month deadline to have priority over third parties, the two-year deadline to record a mechanics lien and the 90-day deadline to send a subcontractor’s notice.
Failure to Bring All Causes of Action in a Single Complaint May Prohibit You From Bringing a Different Cause of Action at a Later Date When Making Illinois Mechanics Lien Claims. The concept of res judicata says that a matter once litigated between parties to a final judgment in a court of competent jurisdiction cannot again be controverted. That is, once issues are decided by the court, they cannot later be the basis of another action asking for the same issues to be decided. In one Illinois lawsuit, a contractor tried to bring a cause for the balance of the contract price after it had already brought an action for extra work. The court held the contractor was barred by the principle of res judicata. However, this principle would not apply if the second case was brought against a different defendant because no one not a party to the original litigation can claim the benefit of res judicata. Put simply, if you’re a subcontractor bringing a lien foreclosure action and you name the general contractor as defendant, if you want to bring a breach-of-contract claim against the same general contractor you’ll want to do so in the same suit as your foreclosure action. Failure to do so means you’ll likely not get another opportunity at a later date. This is not necessarily the case for work on public projects, however. The Public Construction Bond Act provides a separate bond cause of action apart from the public lien a subcontractor has a right to pursuant to Section 23 of the Illinois Mechanics Lien Act. Dismissal of an action filed under the Mechanics Lien Act does not bar by res judicata an action against a public bond. Only if a subcontractor waives its right to a public lien then it might also waive its right to recover against the bond.
A Proposed Filing to Foreclose on Illinois Mechanics Lien Claim is Insufficient to Abide By the Statute of Limitations Set Forth in the Illinois Mechanics Lien Act. Section 9 of the Illinois Mechanics Lien Act requires that a lien claimant actually file its foreclosure action within two years from its last date of work, a proposed filing is insufficient. In one Illinois lawsuit, a default judgement and sale were entered in July 2007. In April 2018, the lien claimant moved to vacate the default judgment and for leave to intervene and file a counterclaim to foreclose on its mechanics lien. The proposed counterclaim foreclosing on the lien was attached to the motion. While the motion was pending the two-year statute of limitation to enforce its mechanics lien had expired. The mortgagee moved for summary judgment based on the two-year statute of limitations and summary judgment was granted. The court held that merely attaching a proposed counterclaim to a motion did not satisfy section 9 of the Illinois Mechanics Lien Act. Rather, the claimant must have actually filed the complaint within the two-year statutory period. Lien deadlines, such as the statute of limitation to file your lien, are strictly enforced; it is imperative you do not let them lapse unless you intend to give up your rights to the lien. In the above case, if the motion to intervene would not be heard on time, the lien claimant should have filed its suit to foreclose its lien in a separate action and then moved to consolidate with the mortgage foreclosure case afterwards. The lesson here is that to protect your right to enforce your lien, you must take whatever action is necessary to file by the statutory deadline. With the limited exception of an automatic stay in bankruptcy, deadlines to enforce do not toll and may not be extended.
Bonding Over Illinois Mechanics Lien Claims to Avoid Subjecting the Property to Liability. In January 2016, the Illinois Mechanics Lien Act was amended to include section 38.1, allowing owners or other parties with interest in real estate to substitute an eligible surety bond in lieu of a mechanics lien attached to the property. The purpose of section 38.1 is to give owners or other interested parties a way to remove the lien from the property while still keeping the lien claimant’s claim enforceable. There are advantages and disadvantages for both sides in bonding over a lien, but a lien claim bonded over is still enforceable against the bond. One of the downsides for a lien claimant is that it may lose leverage against the owner because the property is no longer at issue. However, on the plus side, there is now a known pocket of money for which the lien claimant can recover the full amount of its lien should it prevail. It would not be considered unusual for a lien claimant who wins its claim to have difficulty recovering from the losing party. Or perhaps there are multiple liens whose collective value is greater than the value of the property; in which case the amount of recovery would be limited to the proportionate amount of the lien claims. However, where an owner or other interested party bonds over the lien they must do in an amount 175% times each lien claim, meaning full recovery is possible and collection in general is easier because it would be coming from an A rated bonding company (pursuant to the requirements of the Act).
Failing to Consider the Strength of Your Defenses to Illinois Mechanics Lien Claims Prior to Bonding Over a Lien. An owner or other interested party looking to bond over a lien should not be hasty to do so without understanding the risks associated with it. Although bonding over a lien may be the best decision for an owner, often an owner will ask the general contractor to bond over a subcontractor’s lien. The owner may leverage the terms of the contract or withhold funds to convince a general contractor to bond over a lien. From the general contractor’s perspective, it may agree to bond over the lien to avoid being in breach of contract, to get paid or perhaps to preserve the business relationship between itself and the owner. Whatever the reason, the general contractor should carefully examine its defenses to the mechanics lien claim before agreeing to bond over a lien, and likewise should an owner considering doing the same. Section 38.1 of the Illinois Mechanics Lien Act affords the lien claimant the right to recover attorney’s fees from the principal of the surety bond should the lien claimant prevail on its claim. The Illinois Mechanics Lien Act defines “prevailing party” to mean being awarded a judgment in an amount equal to at least 75% of the lien claim amount. Meaning if you bond over a lien and the lien claimant is awarded 75% or more of its lien claim, the principal is liable to pay the attorney’s fees of the lien claimant which could be tens or even hundreds of thousands of dollars. It’s important to note that the lien claimant can’t receive any amount in excess of the bond amount, which is 175% of the lien amount. So even if attorney’s fees are awarded, there is a limit to the amount of recovery. Still attorney’s fees can be substantial. Any interested party, but particularly a contractor, should consider the likelihood the claimant prevails on its claim before it runs to bond over a lien to satisfy the owner.
Starting Work Prior to the Formation of a Contract May Result in Precontract Work Being Unlienable and Void Illinois Mechanics Lien Claims. As discussed, the right to lien is inherent in every contract between an owner and a contractor to provide services to improve the value of the property. Where there is no contract, there is no right to lien. One of the common mistakes made by a contractor is beginning work before signing a written contract or even before the terms of the deal are agreed to in principle. Even a letter of intent may not be enough to be considered a formation of a contract. In Quake Construction, Inc. v. American Airlines, Inc., the Supreme Court held that the letter of intent was ambiguous as to whether there was a contract, and therefore, the decision should be left to a judge or jury to determine the parties’ intent. This is bad position for a contractor who already used resources to begin work on a project. This common mistake occurs because an owner wants work to begin quickly and the contractor agrees, either because it feels pressured to proceed so as not to lose the contract, or perhaps based on a previous successful relationship, the contractor figures the terms of the agreement will get sorted out soon. The best way to handle this situation however is for the parties to sign an interim agreement which details the scope of the initial work and the price to be paid for the work while the final contract is being negotiated. It is not advisable to perform any work before having a signed written contract stating the work to be done and the price to be paid for the work (even though I concede that this cannot always happen in the real world of design and construction projects).
Failure to Obtain Signed Written Change Orders For Extra Work May Invalidate Illinois Mechanics Lien Claims For That Extra Work. Claims for extra work are often caused by incomplete plans, discoveries found during construction, defects in the work or a change of plans as directed by the owner. This results in extra compensation during the construction process after the project’s financing has been arranged. This can be problematic since the money a lender lends for a project can often be commensurate with the value of the building once the project is complete. When additional money is required to finish the project, payment of change orders can often get delayed which can cause the general contractor to stop payment to subcontractors. Subcontractors have an additional obstacle to recovering for extra work. Section 21(d) of the Act states that the owner does not have to pay more than the price of the original contract unless payment has been made to the general contractor in violation of the rights and interests of the persons intended to be benefited by the Act. That is, if the subcontractor provides notice of nonpayment to the owner, the owner must withhold money from the general contractor equal to that which is owed to the subcontractor. If it pays the general contractor anyways, the owner might be on the hook for paying the subcontractor, resulting in double payment for the same work. However, if the subcontractor does not provide notice to the owner before the owner paying out the general contractor then the subcontractor might not have a right to lien for amounts unpaid, which is often for extra work. Fortunately, for subcontractors, even though section 21(d) uses the term original contract, the contract price also includes extra work authorized by the owner or one permitted by the owner to authorize such work. It can be difficult however, to prove that the owner authorized extra work if there are no signed change orders for the extra work to be performed. The bottom line is you should always wait for a written and signed change order before performing additional work, and if you’re a subcontractor it would be due diligence to get proof of authorization by owner before proceeding, otherwise you may find yourself in a situation where the work you performed is not lienable.
A Contractor That Performs Work At the Direction of Only Spouse May Not Have a Right To Illinois Mechanics Lien Claims. Work performed at the direction of one spouse without the permission of the other is lienable only if the property is not held by the husband and wife as tenants by the entirely or jointly, with a right of survivorship. Under Section 3 of the Illinois Mechanics Lien Act, if the spouses hold interest in the property as tenants by the entirety or jointly, with a right of survivorship, the interest in the property will be bound by a lien for work ordered by only one spouse where he or she knows of the work and fails to protest in writing. Section 3, however, only applies to contractors, not to subcontractors. With joint ownership, both spouses should be named as defendants and both spouses should be served as individuals not as a married couple. Where a contractor performs work at the direction of one spouse and the property is not held as tenants in the entirety or jointly, with a right of survivorship, the contractor might have no right to lien for nonpayment from the spouse for which it contracted. This information begs the question then, how does a contractor know if the spouses hold the property as tenants by the entirety or jointly, with a right of survivorship. Admitted it’s not always readily available information, however, a search of the property documents in the office of the recorder in the county in which the property is located is a good place to start. The deed conveying the property should indicate how the spouses own the property. It’s safer however, and perhaps easier, to simply get both spouses to sign the contract for the work to be performed.
A Contractor Should Serve its Notice of Claim to Lien on Both Spouses to a Marriage or its Lien Claim May Be Invalidated When Making Illinois Mechanics Lien Claims. Where there are multiple owners of record of the property, service of notice on one is not always sufficient for service on another. This is especially true when the property is owned by spouses. Although marriage creates a contractual relationship, spouses are not the agent of the other under the Illinois Mechanics Lien Act, and therefore, both spouses should not only be named as defendants but served separately. However, if both spouses were involved in the improvement, a case can be made that they are a joint venture. When multiple owners are a joint venture, service on one might be good service on the other. Section 3 of the Illinois Mechanics Lien Act binds the spouse’s interest in the land if he or she knowingly permits the work to be done and does not protest. But unless the spouses are joint venturers, service of notice on one spouse would not necessarily be service on the other. If you are unsure of the relationship between the spouses, it’s best to serve both with your lien claim.
Malicious Illinois Mechanics Lien Claims Which Are Not Based in Truth or Are Made With a Reckless Disregard of The Truth Can Open the Lien Claimant Up to a Claim of Slander of Title. A recorder’s office does not review a lien claim for its legitimacy. If the claimant’s lien meets the form criteria to record, the recorder’s office will record the document. The office leaves evaluating the legitimacy of the claim to the courts. Therefore, it is possible that a party may record a bad faith lien, which is not well-grounded in fact or law, but rather for the purpose of intimidation or pressure. The act of maliciously recording a document which clouds title to the property is an actionable fraud claim for slander of title. This is never a smart decision. Recording a mechanics lien under false pretenses such as retaliation or to prevent a pending sale is slander of title and opens the lien claimant up to serious consequences if the property owner sues and can prove its claim. The standard of slander of title requires knowledge by the defendants that the disparaging statements were false or were made with reckless disregard of their truth or falsity. Fraud claims comes with serve consequences that will likely outweigh any benefit to filing a fraudulent lien claim, including statutory penalties and perhaps a judgment to pay the opposing party’s attorney’s fees.
Illinois Mechanics Lien Claims Must Be Signed By a Person or Entity That is Identified Within the Lien as the Lien Claimant or the Lien May Be Invalid. In one Illinois lawsuit, a contractor’s claim for lien was dismissed because the preparer of the lien claimant misidentified herself as the claimant, but also because she signed the verification as the lien claimant even though she did not have a contract to perform work on the project. Section 7 of the Illinois Mechanics Lien Act requires a lien to accurately describe the contract on which the claim for lien is based. In Bale, the preparer of the lien claim was not a party to any contract to improve the property, and the court held that having a party hold themselves out to be the lien claimant including signing the lien verification, even because of a scriveners’ error, fails the Section 7 requirement to accurate describe the contract, and therefore the lien was dismissed. Therefore, every claim for lien should be closely scrutinized for scriveners’ errors, particularly regarding the accurate identification of the parties, before recording a mechanics lien. With regard to the signature verification, the lien should be signed either by the individual lien claimant or if the claimant is a corporation, an officer or authorized signatory of the corporation.
Recording a Lien For Demolition Work When There is No Plan to Improve the Property Might Invalidate Illinois Mechanics Lien Claims. Under the Illinois Mechanics Lien Act, demolition work is a lienable service. Destroying an old structure and removing the debris from the property does enhance the value of the property, but only if these services are done as part of a bigger plan to improve the property. This conforms with the general principal which all liens are based – that no matter the work being done, the question is whether the property is enhanced by the work. In other words, was the work done to improve the property. If the answer is yes, then the work performed is a lienable service. If the answer is no, then no right to lien exists. Earlier in this article we discussed what type of work is considered to enhance property and what work does not. Demolition can be lienable work, however if the property owner does not plan on replacing the existing structure when the demolition work is provided then the demolition work cannot be considered to have enhanced the property and therefore there is no right to lien.
Recording Illinois Mechanics Lien Claims For Work to Create a Fixture May Not Create a Right to Lien. A fixture is something that is installed on the property either with the intention for it to be permanent or not permanent. Some examples may include lighting, appliances, countertops, etc. But not all work that surrounds creating a fixture is lienable work. Illinois courts have set several factors to be considered in determining whether work to create fixture is lienable. These factors are: (1) intent; (2) the nature of its attachment to the real estate; (3) its adaption to and necessity for the purposes for which the premises are devoted; and (4) whether it was intended that this item should be considered party of the real estate. The preeminent factor is intent. Merely because an item can be removed without materially injuring the property does not mean that installing it was not lienable work. If the agreements between the parties indicate that the installation of the fixture is intended to be a permanent improvement, it might be considered lienable work. This is often found where a lessee orders work to be done on a property it is leasing from the owner. If the contract to improve the property provides that title to the improvements passes to the owner upon expiration of the lease than that fixture is lienable work. However, where the agreement does not state the fixture passes to the owner, then that work might not be considered lienable work. The intent of the fixture must be to permanently improve the real estate, not simply to carry on the occupant’s business or use. It also does not matter how difficult it is to remove the fixture. The physical connection could be as simple as a plug inserted into an electrical socket. It has been held that refrigerators can be become a permanent part of the real estate because refrigerators are necessary for apartments to be acceptable to tenants.
A Lien Claimant Who Rents Equipment to a Contractor May Not Have a Right to Illinois Mechanics Lien Claims. Before 2007, providing rental equipment was not considered a “lienable” activity which would support a mechanics lien. The Illinois Mechanics Lien Act was amended in 2007 to add Section 1.2 to provide that a person who leases construction equipment to another for use in the process of the construction to improve the property has a lien for the rental value of the construction equipment. The value of the lien only applies to the extent that the rental equipment was used on the site for a specific improvement. In other words, if the same rental equipment was used by a contractor on multiple projects, the rental company’s right to lien must be allocated to each property which the equipment was actually used. However, not all projects provide a rental company a right to lien. Pursuant to Section 1.2 of the Illinois Mechanics Lien Act, a rental company might not have a right to lien if the equipment was used on a single-family residence or a multi-family residence of fewer than 12 units in a single building.
Failure to Perform the Work in a Workmanlike Manner May Defeat Illinois Mechanics Lien Claims, but Usually Only Where the Defect is the Fault of the Contractor. This should go without saying, however, a contractor who performs defective work might not have a right to lien for that work. Illinois courts have repeatedly held that implied in every contract to perform construction work is an implied warranty that the work will be performed in a workmanlike manner. A contractor that does not comply with the owner approved plans and specifications does not performed work in a workmanlike manner. Whether the work was performed in a workmanlike manner is a question of fact to be decided by a judge or jury at trial. However, if the work is found to be defective, and not in a workmanlike manner, then the lien claim for said defective work might be defeated. However, if the work performed was defective because the plans and specifications were defective, then the contractor who performed the defective work might be entitled to a lien claim. For example, if a plumbing contractor, following the owner approved plans and specifications, installs one-inch pipe and later it is discovered that the one-inch pipe is insufficient for its intended use, the work to install the one-inch pipe will be considered lienable work even if the work must be uninstalled and replaced. There is often an implied warranty by the owner to the contractor (i.e., the Spearin Doctrine) that the plans and specifications provided by the owner will allow the contractor to construct the improvements successfully, thus allowing the contractor to perform its part of the contract. If the contractor is bound to build according to approved plans and specifications than the contractor might not be held responsible for the consequences of defects in the plans and specifications.
An Owner Must Pay Undisputed Illinois Mechanics Lien Claim Amounts to the Lien Claimant or Risk Paying the Lien Claimant’s Attorney’s Fees. A common occurrence is where an owner withholds payment to a contractor because it believes the contractor has failed to perform its work under the contract. As a result, a contractor may record a lien on the property. And because a lien claim is recorded on the project, the owner may instinctively withhold all amounts claimed in the lien from the contractor even if it does not contest that the contractor is legitimately owed some of that lien amount. Illinois courts have held that when an owner does not pay undisputed amounts owed to a contractor, then the contractor might be entitled to an award of attorney’s fees. This decision is grounded in Section 17(b) of the Illinois Mechanics Lien Act, which states, “if the court specifically finds that the owner who contracted to have the improvements made failed to pay any lien claimant the full contract price, including extras, without just cause or right, the court may tax that owner, but not any other party, the reasonable attorney’s fees of the lien claimant who had perfected and proven his or her claim.” In other words, an owner usually only may withhold funds from a contractor if it has just cause to do so. Any money legitimately due to a contractor should be paid by the owner.
A Contractor May Not Have a Claim For Lien For Extra Work if the Owner Believed That the Extra Work Was Included in the Original Contract Price. Not every change in the work will result in a claim for extra work. Where the contractor makes changes requested by the owner which the owner reasonably believes are included in the original price, the contractor must notify the owner there will be an extra charge before doing the work. If the contractor fails to notify the owner, the contractor might not be entitled to extra compensation. A contract that contains a provision which provides there will be no extra compensation unless there is an agreement in writing will be enforced. However, there is an escape hatch for a contractor that fails to notify the owner that the extra work will cost additional compensation. The owner can waive the requirement that the agreement for extras be in writing by proving by clear and convincing evidence that (1) the work was outside the scope of the original contract; (2) the extra work was ordered at the direction of the owner; (3) the owner agreed either expressly or impliedly to pay extra work; (4) the extra work was not voluntarily furnished by the contractor; and (5) the extra work was not rendered necessary by any fault of the contractor. Documents and even oral testimony can often prove the owner waived its right to written change orders. As a practical matter, its best to get change order approved by the owner before you perform any extra work. However, subcontractors don’t always have access to get written approval from the owner. In this case, a subcontractor should get a written change order signed by the general contractor which states that the owner has approved the extra work and the additional compensation that accompanies it.
Materials Delivered to a Project Can Be Lienable Services, However, They Might Only Lienable to the Extent They Are Intended to Be Used to Enhance the Property. As discussed, material delivered to a property for the purposes of improving said property is often considered lienable. A material supplier might, under some circumstances, have a right to lien for the amounts due to it for providing the materials. The material supplier not only has a right to lien but so does the subcontractor or contractor who order the materials to be delivered to the site under a contract with an owner. However, the right to lien is limited to the extent the material was intended to be used to enhance that particular property. If material for multiple properties is delivered to an independent space or one particular property, the value of the lien will be limited to the value of materials intended for each property. In other words, a material supplier who delivers $50,000 worth of materials to a property can only lien that property for $50,000 if all the material delivered was intended to be used to improve that property. I should caution you that mechanics lien claims from material suppliers have considerable nuance and rules, and exceptions to those rules, which are unique among the various kinds of lien claimants. Material suppliers, in particular, may wish to consult an Illinois construction attorney before attempting to perfect Illinois mechanics lien claims.
The Home Repair and Remodeling Act No Longer Invalidate Illinois Mechanics Lien Claims Unless the Homeowner Can Establish a Claim For Fraud or Suffered Actual Damages. Okay, so this isn’t so much of a way to defeat or screw up a mechanics lien claim but to clear up any misconception that violating the Home Repair and Remodeling Act negates the right of the contractor to have a lien claim for amounts it is due. In 2010, the Illinois Supreme Court abrogated the decision of one Illinois lower court, stating that the Home Repair and Remodeling Act does not bar contractors from seeking to enforce oral contracts for home repair and remodeling work valued over $1,000. Likewise, contractors may maintain an action to foreclose their mechanics lien under such oral contract. Unless there are actual damages or fraud, a consumer cannot avoid paying the balance due to a home repair or remodeling contractor by using the technical provisions of the Home Repair and Remodeling Act requiring that a pamphlet and a written contract be given to the homeowner.
Failure to Serve Notice of Claim to the Beneficiary of a Trust Rather Than the Title Holding Trustee Might Invalidate Illinois Mechanics Lien Claims. Section 24 of the Illinois Mechanics Lien Act requires a potential lien claimant to serve notice upon the “owner of record or his agent or architect, or the superintendent having charge of the building or improvement and to the lending agency, if known….” But failing to serve the lender does not invalidate the lien against the owner, only against the lender. Failing to serve the owner of record however may invalidate a lien claim all together. The term “owner of record” means the owner of the title to the property when the notice is served, not necessarily the owner of record when the contract for improvement was made. In the case where a trust is the holding title to property, the trustee is the owner of record, not the beneficiary of the trust. Because it can be difficult to identify the proper owner of record, its best practice to also serve the architect and superintendent having charge of the building.
Serving Statutory Notices By Facsimile Can Invalidate a Right to Assert Illinois Mechanics Lien Claims. Where the Illinois Mechanics Lien Act specifies the method in which a notice is to be served, serving the notice in another way may invalidate a right to lien the property. For example, under Section 24, a 90-day subcontractor notice may be served by “registered mail or certified mail, with return receipt requested, and delivery limited to addressee only, to or personally served on…” Although actual notice can trump the need to serve a 90-day notice under the statute, Illinois court have held that service by facsimile is invalid because it is not an approved method of service under the Illinois Mechanics Lien Act. When in doubt, always adhere to the specific directions identified within the Act. It’s also good practice to double check the approved methods of service each time you send a notice because failure to adhere to the Act can invalidate your right to lien.
Failure to Retain Proof of Service Could Result in a Loss of Lien Rights When Making Illinois Mechanics Lien Claims. The Illinois Mechanics Lien Act set forth the methods in which notices must be served. And many of those requirements obligate the lien claimant to serve notices by certified mail, return receipt requested. As you may know, a certified mailing with return receipt requires the recipient to sign a “green card” which is thereafter returned to the sender. It’s imperative that the prospective lien claimant safely store the returned green card if the recipient later claims it never received the notice. If the recipient claims it did not received notice, assuming the statute of limitations has run, and you cannot provide copies of the receipts or green cards, you may find yourself without a valid lien claim (unless one of numerous possible exceptions applies). It is also considered by some to be the best practice in enforcing a lien claim to attach copies of the green card(s) evidencing proof of service to the mechanics lien foreclosure complaint since you must allege that you complied with the Illinois Mechanics Lien Act in order to successfully plead a mechanics lien foreclosure claim.
Amounts That Exceed the Original Price of the Prime Contract May Not Be Recoverable When Making Illinois Mechanics Lien Claims. Section 21(d) of the Illinois Mechanics Lien Act states that “[i]n no case, except as hereinafter provided, shall the owner be compelled to pay a greater sum for or on account of the completion of such house, building or other improvement than the price or sum stipulated in said original contract or agreement, unless payment be made to the contractor or to his order, in violation of the rights and interests of the persons intended to be benefited by this act…” In other words, the maximum recovery of a lien foreclose action is the amount by which the owner has not paid its general contractor. A subcontractor who is owed amounts greater than the amount due to the general contractor my find itself in the unfavorable position of not being able to collect the full amount owed. This is why it’s important that a subcontractor not hesitate to send notice to the owner as soon as it determines there may be an issue getting paid. Practically, a good rule of thumb is to send a 90-day notice once an invoice has reached 60 days past due, regardless of any promise or assurances that payment is forthcoming.
Failure For a Subcontractor to Provide a Statement of All Sub-Subcontractors and Material Supplier May Invalidate Illinois Mechanics Lien Claims. Section 22 of the Illinois Mechanics Lien Act requires subcontractors to provide a statement similar to the sworn statement required of general contractors in Section 5 of the Act. It authorizes an owner to require a subcontractor to furnish a statement of the persons furnishing labor, services, material, fixtures, apparatus or machinery, forms or form work, giving their names and how much, if anything, is due or to become due to each. Section 22 also gives the owner the right to demand this statement be made under oath similar to a section 5 sworn statement. Section 22 only applies to subcontractors providing more than materials; it does not require those only supplying materials to furnish sworn statements. A subcontractor that fails to provide the Section 22 statement risks invalidating their right to lien.
Temporary Staffing Agencies Who Provide Temporary Employees to Contractors or Subcontractors, May Not Have Lien Rights Under the Illinois Mechanics Lien Act Where the Agreement is Silent on the Work to Be Performed. Where the agreement between the temporary staffing agency and the contractor does not specify the project for which the agreement was entered into, the temporary staffing agency will not have lien rights under the Illinois Mechanics Lien Act. In one Illinois judicial decision, the court ruled that the temporary staffing agency was not a subcontractor or secondary subcontractor entitled to relief under the Illinois Mechanics Lien Act even though it furnished temporary contract employees to the subcontractor. The agreement between staffing agency and subcontractor was not specifically related to a construction project on which staffing agency sought a lien, such that the staffing agency had no contractual obligation to perform any work for a particular project, and thus the staffing agency could not have the right to lien the property. It is possible however for a staffing agency to have a right to a mechanics lien should the agreement provide that the contract employees were being hired to perform contractual obligations of the subcontractor. In one lawsuit involving a bankruptcy, the bankruptcy court upheld the mechanics lien claim of a personnel company that contracted with a subcontractor even though the contract did not specify a specific project to be performed by its workers. The court reasoned that the recitals to the agreement referred to the subcontractor’s obligations to perform work for others and this allowed for the inference that the personnel agency had to perform some portion of the subcontractor’s contractual work and thus, it had a right to lien.
When Making Illinois Mechanics Lien Claims, Delay Damages Might Not Be “Lienable” if the Contract Has a “No Damage For Delay” Clause. Delay damages are generally recoverable in a mechanics lien claim. But where the contract contains a provision stating there will be “no damage for delay” a contractor cannot recover delay damages through the Illinois Mechanics Lien Act. The owner’s or contractor’s right to direct the general progress of the work implies an obligation to keep the progress of the work in a state so the lien claimant may perform within the required time. Breaches that give the lien claimant a claim for delay damages including failing to have the property ready for the work and failing to schedule the work of others on the job site so the contractor can complete its work on time. Where a contractor can prove delay damages and the contract does not contain a “no damage for delay” provision, the damages are lienable under the Illinois Mechanics Lien Act. However, where there is a clear and unambiguous “no damages for delay” clause, it might be enforced, and contractors might have no right to lien for such damages.
Failure to Comply With the Illinois Mechanics Lien Act Might Negate a Contractor’s Right to Lien Even if the Owner or Immediate Contractor Has Failed to Pay the Potential Lien Claimant. In order to have a mechanics lien claim, a claimant must have either substantially completed its work or have a good reason for not completing it. In the case where a contractor has not completed its work, it might want to consider alleging, in its mechanics lien claim, the reason the stopped work. Section 4 of the Illinois Mechanics Lien Act provides that a contractor can stop work, and if the owner or contractor continues not to pay, the contractor can abandon the work and enforce its mechanics lien for the work it had performed up to that point. Even though contractors can stop work when they are not being paid, a contractor who stops work and does not comply with the Illinois Mechanics Lien Act does not have a good reason to stop work and therefore might not have the right to a mechanics lien. For example, section 5 of the Illinois Mechanics Lien Act states that a contractor upon demand from the owner must provide a contractor’s sworn statement listing all the subcontractors and suppliers performing work on the project. If the contractor fails to provide the sworn statement, it does not have a right to stop work even if the owner has stopped paying the contractor. Likewise, a subcontractor who stops work when it is not being paid must serve a 90-day subcontractor notice or it might not have a right to lien for the work it performed.
A Lien Claimant Who Has Provided Unpaid Waiver of Liens to Other Parties May Not Have a Right to Assert Illinois Mechanics Lien Claims if the Other Party Relies Upon The Lien Waiver to Make Payment. A subcontractor asserting its lien claim need not necessarily allege that the owner made wrongful payment or that there is anything due to the contractor. The burden of proving that the owner has alleged payment in full to the contract is on the owner. However, where the owner relies upon unpaid waivers of lien as a defense to a foreclosure action, the burden then shifts to the subcontractor to allege and prove that the defendant did not rely upon the waivers in making payment to the contractor. An “unpaid waiver” is one issued by a contractor or subcontractor even though it has not received the payment the waiver states that the contractor or subcontractor received. If a lien claimant has provided unpaid waivers relied upon by the owner in paying out funds, the lien claimant might not be entitled to a lien claim if the owner has relied upon the waivers or other lien claimants would be prejudiced if they had to share the balance of contract funds or recovery based upon wrongful payments with the lien claimant who has given unpaid waivers. Never provide to any party a waiver of lien which states you have been paid for the work you performed if you have in fact not been paid (if possible, as I realize that it is not always possible to maintain this firm stance in the real world of design and construction projects).
A Lien Claimant’s Pleading Should Allege Service of a 90-Day Section 24 Notice in its Complaint to Foreclose on the Lien or the Foreclosure Action Might Be Dismissed. A lien claimant’s pleading to enforce a mechanics lien must allege either (a) that the lien claimant served the 90-day under Section 24 of the Illinois Mechanics Lien Act upon the owner of record or (b) that the subcontractor was listed on a sworn statement provided to the owner by the general contractor. If notice is based on section 24, the notice is considered a condition precedent to a right to lien and therefore a right to a foreclosure action. If a lien claimant fails to serve a section 24 notice within the 90-day statute of limitations, it should allege that notice was provided to owner pursuant to a sworn statement given by the general contractor, even if it doesn’t know for sure whether they are listed in the sworn statement, in which case the allegation must be made “upon information and belief.” Failure to allege that the notice was served upon owner subjects the lien action to dismissal for failing to allege all the facts to prove the lien claimant complied with the Illinois Mechanics Lien Act.
Failing to Provide Notice to the Appropriate Government Officials to Place a Lien on Public Funds When Making Illinois Mechanics Lien Claims. Yes, yes, the first part of this post stated that it is only about Illinois Mechanics Lien Claims on private project, not public projects. But I cannot resist… Subcontractors and suppliers performing work in Illinois do not have the right to file a mechanics lien on publicly owned property. However, in lieu of a mechanics lien, the legislature adopted Section 23 of the Illinois Mechanics Lien Act which provides payment protection to subcontractors and suppliers who furnish work to public projects. Section 23 only protects those that have no direct contract with the public entity. The methods of perfecting and enforcing a public lien differ from private liens. Specifically, the method by which the lien is initiated is different on public and private liens. For instance, on a private project, after a subcontractor’s notice is served on the owner and lender, the potential lien claimant must still record its lien claim with the county recorder. On a public project however, the notice is the lien claim. To perfect a public lien, also known as a lien against public funds, against a local government project, the claimant must notify the clerk or secretary of the local public body. If the project is owned by the state, the claimant must notify the director or other official responsible for contract administration. The notifications are to be in writing and contain a sworn statement identifying the claimant’s contract, describing the work done by the claimant and stating the total amount due and unpaid for the work as of the date of notice. A copy should be furnished to the contractor who contracted with the local public body or the state.
Failing to Assert a Lien Against Public Funds Within 30 Days of Receiving Demand to Do So From the Contractor May Result in Forfeiting Your Right to Make Illinois Mechanics Lien Claims. Similar to a section 34 demand, which requires a lien claimant to commence suit to enforce its mechanics lien within 30 days or forfeit its lien, section 23 of the Illinois Mechanics Lien Act which governs the rights of subcontractors to place liens on public funds, provides that before a lien has been asserted by a potential lien claimant, the contractor who contracted with the local public body or the state may, upon written demand with service by certified mail, return receipt requested, serve a demand on the potential lien claimant requiring the potential lien claimant to assert the lien within 30 days or it will be forfeited.
Failure to File Suit With 90 Days After Serving Notice the Public Lien Might Invalidate the Lien Claim. Under Section 23 of the Illinois Mechanics Lien Act, a subcontractor who has asserted a claim against public funds has 90 days from the date of service to commence suit a lawsuit enforcing its lien claim. The date of service is considered to begin on the date the notice was sent to the appropriate government official under Section 23 of the Illinois Mechanics Lien Act. Failure to sue within 90 days of sending the notice will usually terminate the lien claim.
Okay, so maybe we didn’t reach 101 ways to defeat – or screw up – a mechanics lien claim, but I got close (a post of 40 single-spaced pages and nearly 25,000 words ain’t half bad), and I will continue to update this post. I think you get the idea!
If you take one thing away from this very long blog post, is should be that the Illinois Mechanics Lien Act is strictly construed, is a beast of a statute to master, and that we can write for hours (and hours and hours and hours and hours) and still not cover even a tiny fraction of the information necessary to truly understand the Illinois Mechanics Lien Act or Illinois mechanics lien claims. This stuff is wonderfully complex!
If you are embroiled in a construction dispute or sense that one might be coming your way, the best thing you can do is to get ahead of it. Do yourself a favor and contact an experience construction attorney to discuss your rights, your obligations, and the best course of action to defeat a mechanics lien or not screw it up – depending on which side you are on!
Until next time!
This publication is prepared for the general information of friends of Baker Law Group LLC in Illinois. It is not legal advice for you, or legal advice regarding any specific matter. Jeremy S. Baker is licensed to practice law only in Illinois. Under rules applicable to the professional conduct of attorneys in various jurisdictions, it may be considered attorney advertising material. Prior results do not guarantee a similar outcome.