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How to perfect and enforce your Illinois Mechanics Lien Claim on private projects

at a construction site

Introduction

This is our third installment in our series on Illinois Mechanics Liens.  Now that we have looked at what a lien claim is, the parties entitled to file a lien claim and what is required to entitled to file a lien claim, we will now look at the steps that need to be taken in order to perfect and enforce a lien claim against a private project.

‘Perfecting’ your Illinois Mechanics Lien Claim

General Contractor’s Claim for Lien

Perfection is the process of converting a general lien right into an enforceable and valuable right in the real estate.  This is done by a written document called a claim for lien.  It is important that the contractor first obtain a title report or search public records to determine the legal description, the owner of record and whether any other parties have an interest in the property at issue.  Once you have reviewed the the title work, you must now draft the claim.

A General Contractor’s claim for mechanics lien must be contain:

  1. A brief statement of the contract and the work performed;
  2. Date the work was completed;
  3. The balance due after all payments and credits; and
  4. A sufficiently correct description of the property and a PIN if available
  5. Names of the owner(s) of record, the party the contractor contracted with, and any mortgagees or lenders

A claim for lien must be verified (i.e. signed in front of a notary) and be recorded within four (4) months of the last date of work or furnishing at the project. The lien claim is recorded in the office of the country recorder where the real estate lies.

Additionally if a general contractor is preparing a lien claim against an owner occupied residence, it must serve a recorded copy of the lien to the owner within 10 days of recording.

Once a general contractor records the lien claim it can be enforced.

Subcontractor Notices and Lien Claim

In order for a subcontractor to enforce its lien claim, it must also prepare the same mechanics lien claim as a general contractor but it also needs to identify all parties in the chain of contract between the subcontractor and the owner which includes the general contractor and any other subcontractors in between.

Section 24 Notice

In addition to recording a lien claim, subcontractors also have notice requirements that must be followed. A subcontractor is required to serve a Notice of Claim to the owner within 90 days if its last date of work or furnishing pursuant to Section 24 of the Illinois Mechanics Lien Act.  

The Notice of Claim must

    1. Identify the contract;

    2. Identify the general contractor and upper tier subcontractors the work was done for;

    3. Describe the work done and when it was performed;

    4. Sufficiently describe the property; and

    5. State the total amount due and unpaid as of the date of the notice.

The requirements of the Subcontractor’s Notice of Claim are very similar to those of the claim for lien and can be the same document. The notice must be served via certified mail with return receipt requested or served personally.  If the notice is not timely served, the subcontractor will lose its lien rights.  

There is an exception to the notice requirement.  A notice might not be required in instances when the General Contractor has tendered a sworn statement pursuant to Section 5 of the Illinois Mechanics Lien Act which identifies the subcontractor, its contract amount and balance due. The sworn statement can provide sufficient notice to the owner of the subcontractor’s claim.  However, it is often difficult to determine whether or not this has happened especially if the relationship between the general contractor and the subcontractor has deteriorated.  It is always best to serve the Notice of Claim within 90 days. 

Once the notice is served and the lien claim is recorded, a subcontractor can proceed to enforce its lien claim.

Section 5 Notice

Subcontractors who work on single family owner occupied residences have yet another notice to send out pursuant to Section 5 of the Illinois Mechanics Lien Act.  Within 60 days of the subcontractor’s first date of furnishing, a subcontractor must send a notice to the property owner via certified mail, return receipt requested with a copy to the general contractor which contains:

    1. The name and address of the subcontractor or material supplier;

    2. The date he or she started to work or to deliver materials;

    3. The type of work done and to be done or the type of labor, services, material, fixtures, apparatus or machinery, forms or form work delivered and to be delivered; 

    4. The name of the contractor requesting the work; and

    5. The following warning:
      • NOTICE TO OWNER:  The subcontractor providing this notice has performed work for or delivered material 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 labor, services, material, fixtures, apparatus or machinery, forms or form work 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 paying for your home improvements.

This notice needs to be served in order to protect the subcontractor’s lien rights even if there are no payment issues.

Enforcing your Illinois Mechanics Lien Claim

In order to enforce a claim for mechanics lien, both general contractors and subcontractors must file a lawsuit or complaint to foreclose their lien claim within two (2) years of the last date of work or furnishing. The lawsuit is filed in the county in which the real estate lies. It must include all parties in the chain of contract between you and the owner along with any other party that has an interest in the property such as a mortgagee/lender and even other mechanics lien claimants.

In the lawsuit, you will be asking the court to sell the property in order to pay the balance due in addition to interest and attorneys fees incurred as provided by the lien act.  The lawsuit can also contain other causes of action such as breach of contract against the owner or general contractor, fraud, actions for bounced or NSF checks, account stated, and any thing else related to the contract or project.  

If the lawsuit is not filed within 2 years, the contractor will lose its lien rights. This period cannot be extended or renewed.

In some instances, the two year deadline can be accelerated pursuant to Section 34 of the Act. An owner or any other party with an interest in the property can issue a demand to the contractor to file suit within 30 days. If suit is not filed within that time, then the contractor’s lien is extinguished.

Bankruptcy – Automatic Stay and Mechanics Lien Claims

What happens if your customer, the general contractor, the owner or any other interested party file for bankruptcy?

Bankruptcy stays enforcement of a lien but not perfection.

Once a party files for bankruptcy protection, the automatic stay kicks in and the debtor is protected from any collection attempts by creditors. Creditors are prohibited from commencing or continuing any litigation against the debtor.  However the stay DOES NOT prohibit a party from asserting or perfecting its mechanics lien rights.  A contractor who is not paid must still serve its necessary notices and record its claim for lien within the time periods set forth above and in the Illinois Mechanics Lien Act. 

The automatic stay does, however, prevent enforcement of the lien claim.  Even if the two year enforcement deadline is approaching, a contractor cannot file suit to enforce its lien claim. It first needs to file a motion in the bankruptcy court and seek modification of the automatic stay so that it can enforce its lien claim. The bankruptcy courts often allow this request as long as the contractor does not seek money damages from the bankrupt debtor and the real estate is not the only asset of the bankruptcy estate. Once the bankruptcy court grants the motion to modify or lift the automatic stay, the contractor can then proceed to file a lawsuit to enforce the lien. 

Lien Deadline Summary

Here is a summary of the deadlines that general contractors and subcontractors need to follow in order perfect and enforce their lien rights against private projects. These are the most important dates to remember!

  • General contractors

    • Record the claim for lien with the county recorder within 4 months of the last date of furnishing.

    • Send copy of recorded lien to the owner if the work was done on a single family owner occupied residence.

    • File a lawsuit suit to enforce lien within 2 years of the last date of furnishing.

  • Subcontractors

    • Serve Notice of Claim within 90 days of the last date of furnishing.

    • Record the claim for lien with the county recorder within 4 months of the last date of furnishing.

    • Send notice to the owner within 60 days of first furnishing date if working on a single family owner occupied residence.

The deadlines must be followed exactly and the lien claim and notices must contain all of the necessary information described above in order to protect and perfect and enforce your lien rights.  Mistakes can be easily made and it is always best to consult any attorney if you suspect you are having payment issues and need to protect your rights.

In our next and final installment, we will briefly review perfection and enforcement of a lien and bond claim against public projects.

Mark B. Grzymala

mark@grzymalalaw.com

Who is entitled to file an Illinois Mechanics Lien Claim?

Illinois mechanics lien claim claimants

This is our second post in our series providing an overview of Illinois mechanics liens. In this installment, we will examine what is required in order to be entitled to an Illinois mechanics lien claim and who is entitled to assert one.

In a typical construction project, there is generally an owner, developer or sometimes a tenant who hires a general contractor to perform work on a project. The general contractor then hires subcontractors for specific trade work such as electrical work or carpentry. Often, those subcontractors will also hire sub-subcontractors or material suppliers (for lumber, pipes, etc.) and so on.

For purposes of the Illinois Mechanics Lien Act (the “Lien Act”), a general contractor is one who had a contract directly with the owner, the owner’s agent or someone he or she has “knowingly permitted” to contract for improvements.  This means that even a plumber can be considered a “general contractor” as long as its contract for the work performed is with the owner.  A subcontractor is one who has a contract with a general contractor.  This is an important distinction and the steps needed to assert and perfect your mechanics lien rights can vary on whether you are a general contractor or a subcontractor under the Lien Act.

General contractors, subcontractors and material suppliers who have furnished labor or materials used to improve real estate from the general contractor to the lowest tier subcontractor or material supplier is entitled to a lien claim for his or her unpaid work against that real estate.

In order to be able to assert a mechanics lien claim under Illinois law, a party generally needs to have:

  1. A valid contract with an owner or his agent (such as a general contractor)  for permanent improvement to real estate;
  2. Performance of that contract or excusable non-performance (such as a failure to timely pay);
  3. The work or materials must actually improve or add value to the real estate; and
  4. The work and materials must be lienable.

Some examples of lienable work include: carpentry work including framing, installing flooring and carpeting, installing drywall,  excavation, paving, electrical work, roofing, masonry, installation of HVAC equipment, plumbing including installing storm and sewage drains, furnishing concrete forms, cabling, drilling for well water, rental of cranes and other construction machinery, whole house painting, installation of an elevator and landscaping.

Some examples of non-lienable work include: patching and painting, cleaning, repair work, maintenance, warranty work, and installing non-permanent fixtures such as kitchen appliances and other trade fixtures.

What about public projects? In our last post we touched upon mechanics lien rights for work performed on public projects.   Under Illinois law, a general contractor (one who has a direct contract with the owner or public entity) cannot assert a lien against the public funds pursuant to Section 23 of the Lien Act.  However, a subcontractor who has furnished labor or materials used to improve a public construction project can as long as the same requirements set forth above are met.

This concludes our second installment on Illinois mechanics liens.  Next we will look the steps necessary to take to perfect and enforce your Illinois mechanics lien claim against private projects.

Mark B. Grzymala
mark@grzymalalaw.com

What is an Illinois Mechanics Lien Claim?

House being built

This is the first post in a series aimed to provide a general overview of mechanics liens and related rights under Illinois law.  We will first look at what exactly a lien is, then we will look at who is entitled to file a lien, next we will examine what is required in order to assert a lien claim, then we will review the steps needed to perfect and enforce a lien claim and finally we will touch upon specific issues that occasionally arise that might affect your lien rights.

So what is a mechanics lien? Mechanics liens in Illinois are governed by the Illinois Mechanics Lien Act which can be found at 770 ILCS 60/1, et seq.  A lien is essentially an intangible right in real property. It acts as a cloud on the owners’ title and prevents the owner from selling or refinancing the property until the lien claim is resolved. A mechanics lien claim is recorded in the office of the county recorder of deeds in which the real estate is located in. A mechanics lien claim can provide leverage and security for payment especially when your customer is slow to pay or lacks the funds to do so.  The deadline to record a mechanics lien is four months after the claimants last date of furnishing. Subcontractors also need to serve an additional notice to the owner within 90 days of their last date of furnishing.

Sometimes title companies will allow a general contractor or even a property owner to provide a bond or other insurance to cover a subcontractor’s lien claim. However, there currently is no mechanism under Illinois law which allows a party to “bond over” a lien claim. The lien claim will always remain and the contractor will always have all rights under the Mechanics Lien Act including  the right to enforce the lien claim and foreclose upon the real estate.

It is important to note that mechanics liens can only be recorded against privately owned projects and not government owned projects such as public schools, city parks, libraries, or other municipal facilities.

However, subcontractors who are unpaid on public projects have different remedies. They are able to file a lien against the funds owed from the public entity to the general contractor pursuant to Section 23 of the Illinois Mechanics Lien Act (770 ILCS 60/23).  This is also commonly referred to as a “trapping lien” and no claim is asserted against the actual real estate.  Upon receipt of the notice of claim, the public entity is required to hold funds claimed to the extent it still has them.  Furthermore, for most public projects, the general contractor is required to provide a payment bond under the Illinois Public Construction Bond Act, 30 ILCS 550/1, et seq. Subcontractors can also assert and enforce claims against these payment bonds togrethet with their claims against the public funds.  Claims against bonds must be submitted within 180 days of the claimant’s last date of furnishing.

Liens against private or public projects have very short deadlines upon which to act and you should consult with an attorney as soon as you are anticipating payment issues from your customer.

This concludes our first installment on mechanics liens. Our next post will define the parties entitled to assert lien claims against private and public projects and the requirements that need to be met in order to do so.

Mark B. Grzymala

mark@grzymalalaw.com

Mechanics Lien Seminar – February 8, 2015 at 12 noon

Road construction

On Sunday February 8, 2015, I will be presenting a seminar on the topic of Contractor Rights and Mechanics Liens.  I plan to cover the following topics:

– What is a Mechanics Lien?
– Construction Contract Issues
– Preparing a Lien and Notices
– Enforcing a Mechanics Lien
– Other ways of getting paid

The seminar starts at 12 noon and will be held in the auditorium at 1135 North Clever in Chicago, Illinois.

This presentation is sponsored by the Polish Immigration Association.  For more information on this organization please visit www.sepchicago.com 

-Mark B. Grzymala

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