With volatile housing markets, property owners often find themselves having to make desperate financial decisions. Unfortunately, a customer’s depleted funds can leave lenders, contractors, and material suppliers unable to collect on work that has already been completed. The Illinois Mechanic’s Lien Act allows certain entities the right to pursue legal retribution against the property owner, in this situation. If you’re not paid for completed work, this Act can help you collect.
What is the Illinois Mechanic’s Lien Act?
The Illinois Mechanic’s Lien Act allows a contractor, subcontractor, or material supplier to attach a lien for insufficient payment to an improved private property. Ultimately, the property may be sold to pay the balance due under the lien claim. Without a mechanic’s lien, a general contractor is limited to a breach of contract action or unjust enrichment claim against the property owner, and a subcontractor or material supplier is limited to an action against the party it contracted with, usually a general or other subcontractor. Subsequently, when a mechanic’s lien is in place, the property owner is liable on the balance due to a contractor or a material supplier, even if the owner did not directly contract with either party.
How is the mechanic’s lien implemented?
The Act is very specific about when and how liens are used. When pursuing a mechanic’s lien, the person or entity serving the lien must comply exactly with the Act’s requirements. Determining how a lien is implemented depends on the type of contractor. A lien claimant forfeits all rights to a lien claim if they do not strictly adhere to the Illinois Mechanic Lien Act.
A general contractor contracts directly with a property owner, therefore must record a claim for lien with the Recorder of Deeds in the county where the property is located, within four months of the last day of supplying labor or materials for the property in question. In addition, the general contractor must file suit within two years of the last day of supplying labor or materials to the property.
Subcontractors and Material Suppliers:
Subcontractors and material suppliers do not have a direct contract with the owner, therefore the Act imposes additional mandates for the lien to be enforced. For a single-occupancy property the subcontractor or material supplier has 60 days to serve the owner and owner’s lender with his intent to place a lien.
For all other types of property, he must supply the owner and the owner’s lender with 90 days’ notice. Similar to the general contractor, a subcontractor or material supplier has two years from the last day of supplying labor or materials to the property, to file suit. Failure to file suit within the two-year period voids the lien.
A lien has been made; what happens next?
Once a contractor, subcontractor, or material supplier files a claim for lien against a property, the lien must be addressed in order for the owner to sell or refinance the property. In addition, the primary lender may force the property owner to address the lien claim, since the recording of a lien claim by a contractor or material supplier could affect the succession in which funds are acquired. The timeline for acquisition of contracts between lender and property owner, and contractor and property owner, ultimately alters the way in which funds are recouped.
What if the general contractor was secured prior to securing a lender?
While unusual, it is possible that the general contractor contracts with the owner for the construction of improvements prior to securing a lender. In this case, the contractor’s lien claim takes priority over the lender’s interest on the property. The mortgage lender becomes unsecured in its position, when the equity in the property is insufficient to pay both the lien claim and the mortgage lender. Additionally, if the labor or materials supplied by the lien claimant enhance the property value beyond the value of the property at the time the mortgage was recorded, the lien claimant takes priority. For these reasons, most mortgages contain clauses to that effect. Clauses in mortgages are most often put in place to put the loan in default if a mechanic’s lien is recorded against the property – unless the owner provides the lender protection from the lien claim.
Can a property owner nullify a mechanic’s lien?
While there is no way for a property owner to avoid a mechanic’s lien, an owner can protect his or her investment by requesting a sworn statement from the general contractor that discloses the information “… of persons furnishing labor, services, material, fixtures, apparatus or machinery, forms or form work before any payments are required to be made to the contractor,” according to Section 5 of the Act. This is also knows as the Contractor’s Affidavit. Under compliance of Section 5, the owner is not obligated to remit further than what is outlined in the original contract with the general contractor, despite what is owed to a subcontractor.
Further, pursuant to 770 ILCS 60/34, “Upon written demand of the owner, lienor, or any person interested in the real estate, or their agent or attorney, served on the person claiming the lien, or his agent or attorney, requiring suit to be commenced to enforce the lien or answer to be filed in a pending suit, suit shall be commenced or answer filed within 30 days thereafter, or the lien shall be forfeited.” The demand by the owner of the property must also contain specific language within the letter as outlined in the statute.
How do I find out more about property owner’s and contractor’s statutes in Illinois?
Fundamental understanding of the mechanics lien process is imperative in the private construction sector. To a general contractor, subcontractor, or material supplier, livelihood may depend upon knowing what to do once a payment dispute arises. Attorney at Law Thomas Emalfarb, P.C. specializes in construction law and is available to interpret contracts and legal disputes when it comes to real estate issues in the Highland Park, and greater Chicago area, of Illinois.