This article was intended to answer frequently asked questions about Mechanic’s liens in the state of Illinois. The questions contained herein range from the basic essentials of lien filing to a fairly complex discussion of Illinois case law. In preparing this article, numerous sources have been used, all of which have been cited throughout the text.
In the event a question arises regarding an issue on your construction project, or if you have a question about liens or something related to collecting payment on a project, please contact one of our attorneys for assistance with your case.
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General Mechanic’s Lien Questions
The purpose of this section is to inform the reader of the basic principles surrounding Illinois Mechanic’s Liens using statutes and cases to show how Illinois courts have construed the law regarding such subject matter.
The purpose is not only to give a general overview on the basics of mechanic’s liens, but also to provide more in-depth law to educate readers in order to allow companies and individuals in the construction industry to fully exercise their legal rights to collect money that is lawfully due and owing.
What is a Mechanic’s Lien?
A mechanic’s lien is a tool that contractors and subcontractors can use to create a security interest in property for performing labor or providing materials to improve said property.
While the contractor or individual performing the work can make a claim on the basis of the contract or on the basis of equity, there are certain occasions when the owner is insolvent or unable to pay for the work performed. In such situations, the contractor’s or individual’s only form of recovery may be through the assertion of a mechanic’s lien. Ultimately, the recovery potential may be based on priority of the lien if there is limited or no equity in the property. However, the mechanic’s lien is a mechanism through which the contractor has a direct route to taking the owner’s property and making said property security for the amount owed on the project, which includes the improvements performed thereon.
What is the Authority for a Mechanic’s Liens in Illinois?
Illinois statutes are the basis for mechanic’s liens. They do not exist in common law or in equity. Courts are responsible for interpreting the validity of the liens, but the Courts have some flexibility in construing the same. However, case law dictates that Courts must construe the entire Mechanic’s Lien Act liberally to effectuate its remedial purpose, but before doing so, the lien claimant must have strictly adhered to the statutory requirements to create the lien. The actual verbiage from Illinois cases is set forth below in this article.
What Illinois Statute Creates a Mechanic’s Lien?
The statute that creates Illinois mechanic’s liens is 770 ILCS 60/1. However, 770 ILCS 60/7 defines the requirements, statute of limitations, and other relevant details relating to liens. The remainder of the Illinois statutes under chapter 770 set forth the additional rules governing mechanic’s liens.
What Illinois Law Governs Mechanic’s Liens?
The Illinois Mechanic’s Lien Act falls under 770 ILCS 60/0.01 et seq. and defines a party’s rights with respect to collecting on a construction project by way of a mechanic’s lien. In addition to the Act, there are thousands of cases that interpret the statutes and elaborate on the definitions set forth therein. The case law cited throughout these frequently asked questions section is aimed at explaining how Illinois courts have construed some of the gray areas in the lien law realm.
What is the Purpose of a Mechanic’s Lien?
“[The] purpose [of mechanic’s liens] is to protect, through imposition of an enforceable lien, a party who improves the value or condition of property by furnishing labor or materials.” Seasons-4, Inc. v. Hertz Corp., 338 Ill. App. 3d 565, 570, 788 N.E.2d 179, 183 (2003).
To further describe a mechanic’s lien’s purpose, the Illinois Court of Appeals, First District, states: “the underlying theory of the mechanics’ lien laws is that the owner of the fee is benefited by buildings and improvements erected on his premises as they became part of the realty and that he, having received that benefit, should in right and justice pay for such benefit when it was induced or encouraged by his act.” Rasmussen v. Harper, 287 Ill. App. 404, 410, 5 N.E.2d 257, 260 (Ill. App. Ct. 1936).
“[The] purpose of such a statute is to permit a lien upon premises where a benefit has been received by the owner and where the value or condition of the property has been increased or improved by reason of the furnishing of labor and materials.” Colp v. First Baptist Church of Murphysboro, 341 Ill. 73, 76–77, 173 N.E. 67, 68 (1930).
When Does a Lien Provide a Right to Recovery?
“Mechanics Lien Act provides a method of recovery where a landowner received beneficial improvements to his property or his property value was increased because of a contractor’s labor and materials.” Matanky Realty Grp., Inc. v. Katris, 367 Ill. App. 3d 839, 841, 856 N.E.2d 579, 582 (2006) (citing Gateway Concrete Forming Systems, Inc. v. Dynaprop XVIII: State Street LLC, 356 Ill.App.3d 806, 809, 292 Ill.Dec. 615, 826 N.E.2d 1051 (2005)).
Who has the Right to file a Mechanic’s Lien?
Any person who has a contract with the owner of property or a person who provides material or labor on a lot or tract of land has the right to file a mechanic’s lien. These “persons” are described as contractors and subcontractors, the definition of which is set forth in this article. In addition to the foregoing prerequisites, there are numerous statutory conditions that are also discussed in this FAQs article, which must be satisfied to file a valid mechanic’s lien. 770 ILCS 60/1 & 770 ILCS 60/21
How long does a Contractor have to file a Mechanic’s Lien in Illinois?
4 Months after last work is completed. However, the 4 months’ time period is more than just a statute of limitations, it is the only window in which lien rights may be asserted by the contractor. “It goes to the existence of the right itself.” N. Side Sash & Door Co. v. Hecht, 295 Ill. 515, 519–20, 129 N.E. 273, 274 (1920).
No contractor shall be allowed to enforce such lien against or to the prejudice of any other creditor or incumbrancer or purchaser, unless within 4 months after completion, or if extra or additional work is done or labor, services, material, fixtures, apparatus or machinery, forms or form work is delivered therefor within 4 months after the completion of such extra or additional work or the final delivery of such extra or additional labor, services, material, fixtures, apparatus or machinery, forms or form work, he or she shall either bring an action to enforce his or her lien therefor or shall file in the office of the recorder of the county in which the building, erection or other improvement to be charged with the lien is situated… (770 ILCS 60/7)
How long does a Claimant have to foreclose on a Mechanic’s Lien?
A lien claimant must foreclose on a mechanic’s lien “within two years after the completion of the contract, or completion of the extra or additional work, or furnishing of extra or additional material thereunder.”
(770 ILCS 60/9)
What is a Subcontractor Pursuant to the Illinois Mechanic’s Lien Act?
A subcontractor is defined under 770 ILCS 60/21 as “every mechanic, worker or other person who shall furnish any labor, services, material, fixtures, apparatus or machinery, forms or form work for the contractor, or shall furnish any material to be employed in the process of construction as a means for assisting in the erection of the building or improvement in what is commonly termed form or form work where concrete, cement or like material is used in whole or in part…”
How do Illinois Courts Construe Mechanic’s Liens?
The interpretation of a mechanic’s lien could be referred to as oxymoronic in the sense that the Illinois courts interpret the Act liberally but they construe the satisfaction of the basic lien requirements stringently.
The Courts routinely state that the Mechanic’s Liens Act “is and shall be liberally construed as a remedial act.” (770 ILCS 60/39)
However, to the contrary, “[i]t is well established that the Act must be strictly construed with respect to all the statutory requirements upon which the right to a lien depends.” Cityline Const. Fire & Water Restoration, Inc. v. Roberts, 2014 IL App (1st) 130730, ¶ 10, 7 N.E.3d 235, 237 “The rights created under the Act are statutory and in derogation of the common law, and the technical and procedural requirements necessary for a party to invoke the benefits of the Act must be strictly construed.”
“While our supreme court has declined to establish filing requirements other than those expressly provided in the Act, not wishing to render validly perfected liens technically unenforceable, it remains the settled rule that ‘the lien is valid only if each of the statutory requirements is scrupulously observed.’” Aluma Sys., Inc. v. Frederick Quinn Corp., 206 Ill. App. 3d 828, 839, 564 N.E.2d 1280, 1287 (1990)(quoting First Federal Savings & Loan Association v. Connelly (1983), 97 Ill.2d 242, 246, 73 Ill.Dec. 454, 456, 454 N.E.2d 314, 316.)
What are the Elements of a Prime Contractor’s Lien in Illinois?
There are a number of necessary elements when filing a mechanic’s lien in Illinois. The following are the general prerequisites:
“(1) a valid contract,
(2) with the owner of the property or his agent or someone who is knowingly permitted by the owner to contract for improvements,
(3) for the furnishing of services or materials, and
(4) performance of the contract or a valid excuse for nonperformance.” Tefco Const. Co. v. Cont’l Cmty. Bank & Trust Co., 357 Ill. App. 3d 714, 718, 829 N.E.2d 860, 863 (2005).
What are the Requirements if a Lien Claimant wants to enforce the Lien against another Creditor?
If the lien claimant wishes to enforce the lien against a creditor, the claimant must: “(1) file its claim within four months after the completion of the work; (2) verify the lien by affidavit of the claimant or an agent or employee; (3) include a brief statement of the contract; (4) set forth the balance due; and (5) provide a sufficiently correct description of the lot, lots, or tracts of land to identify the same.” Young v. CES, Inc., 2014 IL App (2d) 131090-U, ¶ 79. (citing 770 ILCS 60/7(a) (West 2012); Tefco, 357 Ill.App.3d at 719. See generally First Federal Savings & Loan Ass’n v. Connelly, 97 Ill.2d 242, 249 (1983) (lien claim sufficient even though it pertained to a contract for work on four different buildings likely performed on different dates); Lyons Federal Trust & Savings Bank v. Moline National Bank, 193 Ill.App.3d 108, 112 (1990) (“a statement of mechanics lien does not necessarily require a contract date to be alleged”)).
Can Attorney’s Fees be collected on a Mechanic’s Lien?
Under certain circumstances attorney’s fees may be collected on a mechanic’s lien. However, prior to the court awarding attorney’s fees, it would have to find that the owner failed to pay “without just cause or right.”
In this context, without just cause or right is defined under 770 ILCS 60/17 as “a defense asserted by the owner who contracted to have the improvements made, which is not well grounded in fact and warranted by existing law or a good faith argument for the extension, modification, or reversal of existing law.”
The applicable statute that allows the lien claimant to recover attorney’s fees states the following, in pertinent part:
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. 770 ILCS 60/17(b)
What can a Subcontractor file a Mechanic’s Lien for in Illinois?
Any person who shall by any contract or contracts, express or implied, or partly expressed or implied, with the owner of a lot or tract of land…has a lien upon the whole of such lot or tract of land…for the amount due to him or her for the material, fixtures, apparatus, machinery, services or labor, and interest at the rate of 10% per annum from the date the same is due. 770 ILCS 60/1)
“Section 1 of the Mechanic’s Lien Act (Ill.Rev.Stat.1977, ch. 82, par. 1) specifically provides that a contractor shall have a lien for the amount due from the service, material and labor furnished ‘and interest from the date the same is due.’” Plepel v. Nied, 106 Ill. App. 3d 282, 290, 435 N.E.2d 1169, 1175 (1982).
Can a Contractor file a Lien if the Owner Breaches the Contract?
Can a Contractor have a Mechanic’s Lien on an Easement?
Yes. However, a lien will not extend to an easement if the work is solely performed on the easement.
“Although we recognize that a lien may be extended to ‘an estate in fee, or any right of redemption or other interest that the owner may have in the lot or tract of land’ (770 ILCS 60/1 (West 2004)), we determine that ‘other interest’ does not include easement rights when the improvements at issue were solely made on that easement and not in connection with any improvements to the principle property.” Matanky Realty Grp., Inc. v. Katris, 367 Ill. App. 3d 839, 843, 856 N.E.2d 579, 583 (2006).
Will a Mechanic’s Lien be Invalid if the Amount Due is Incorrectly Stated?
Maybe. This depends, however, on the mental state/intentions of the contractor at the time the lien is prepared and filed.
“No [lien that has an erroneous amount stated] shall be defeated to the proper amount thereof because of an error or overcharging on the part of any person claiming a lien therefor under this Act, unless it shall be shown that such error or overcharge is made with intent to defraud” (770 ILCS 60/7); See http://www.ilga.gov/legislation/ilcs/fulltext.asp?DocName=077000600K7
Does a Mechanic’s Lien have to contain different information (apportionment of claim) when covering multiple parcels of land?
No. Apportionment of each claim is not a well-defined rule in Illinois as it pertains to multiple parcels of land. Of course, if the lien claimant is able to break down the claim into each parcel, it may be well-advised to thoroughly describe the work for which the lien claim has been made.
The Illinois Court of Appeals states the following “Schmidt [v. Anderson (1911), 253 Ill. 29, 97 N.E. 291] did not lay down a per se rule that each time multiple properties are involved, allocation is required.” (Barker-Lubin Co. v. Unknown Heirs or Devisees (1982), 106 Ill.App.3d 89, 92, 61 Ill.Dec. 796, 435 N.E.2d 493.)
What if the Lien Statute Changes over the Course of my Contract, which statute governs? The new or the old statute?
While this is what appears to be one of those gray areas, there is case law that answers this question. The answer is: the lien statute in place at the time when the parties enter into the contract will govern if any disputes arise.
What is Enhancement in the Context of Mechanic’s Liens?
Section 16 of the Mechanics‘ Lien Act provides in relevant part that “upon questions arising between incumbrancers and lien creditors, all previous incumbrances shall be preferred to the extent of the value of the land at the time of making the contract, and the lien creditor shall be preferred to the value of the improvements erected * * *.” 770 ILCS 60/16 (West 1994). Therefore, in order to have priority over a mortgagee, mechanics‘ lien claimants whose contracts with the owner are made after the mortgage is recorded, must prove that they have enhanced the value of the property. If they fail to prove this, then the mortgage will have complete priority over the liens.
Lyons Sav. v. Gash Assocs., 279 Ill. App. 3d 742, 744, 665 N.E.2d 326, 329 (1996)(citing Commercial Mortgage & Finance Co. v. Woodcock Construction Co., 51 Ill.App.2d 61, 65, 200 N.E.2d 923, 925 (1964)).
How does a Lien Claimant prove Enhancement?
What is the Market Value Theory?
What are other Ways to Prove Enhancement of Property?
When is the Market Value Theory the Appropriate Method of Determining the Enhancements on Property?
The Illinois Court of Appeals held generally that when the improvements were greater than 10% of the structure, then the proper measure of damages is the market value theory. This reason comes in part from the concept that “the margin of error in utilizing the market value approach is 10%.” Lyons Sav. v. Gash Assocs., 279 Ill. App. 3d 742, 746, 665 N.E.2d 326, 330 (1996).
What are the Elements when the Market Value Theory is Inappropriate?
What Notice must be given on Owner-Occupied Single-Family Residences?
“A contractor for improvements of an owner-occupied single-family residence must give the owner written notice within 10 days after recording a lien against any property of the owner.” (770 ILCS 60/7)
How is Service effectuated regarding the Contractor’s Notice Requirement on Owner-Occupied Single Family Residences?
With respect to owner-occupied single-family residences, the service is effective at the time it is “sent or personally delivered.” (770 ILCS 60/7)
In the event that the contractor fails to give timely notice to the owner the lien may be extinguished in part, if the owner has suffered damages before notice is given, but only to the extent of the damages caused by failure to provide notice may the lien be extinguished. (770 ILCS 60/7)
What Notice does a Subcontractor have to give to the Owner of Residential Property in order to preserve its Mechanic’s Lien Rights?
Pursuant to 770 ILCS 60/21(c), the subcontractor must give 60 days’ notice from the first day labor is performed.
It shall be the duty of each subcontractor who has furnished, or is furnishing, labor, services, material, fixtures, apparatus or machinery, forms or form work for an existing owner-occupied single family residence, in order to preserve his lien, to notify the occupant either personally or by certified mail, return receipt requested, addressed to the occupant or his agent of the residence within 60 days from his first furnishing labor, services, material, fixtures, apparatus or machinery, forms or form work, that he is supplying labor, services, material, fixtures, apparatus or machinery, forms or form work provided…770 ILCS 60/21
Does a Subcontractor lose its lien rights if it fails to give 60 days’ Notice to a Residential Property Owner?
It depends. “[A]ny notice given after 60 days by the subcontractor shall preserve his lien, but only to the extent that the owner has not been prejudiced by payments made prior to receipt of the notice.” 770 ILCS 60/21(c)
What does the Subcontractor’s Notice have to include?
- name and address of the subcontractor or material man;
- the date the subcontractor began the work or delivered the materials;
- a description of the work performed and that will be performed (or a description of the materials that have been delivered and will be delivered,
- the general contractor’s name who solicited the work from the subcontractor, and
- Certain specific language, written exactly as follows:
“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 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 paying for your home improvements.”
*The above notice must be in at least 10 point bold face font.
The statute generally states that if the notice is sent via certified mail, then the mailbox rule applies. The mailbox rule means that the notice would be deemed to be given on the date that the notice was properly addressed and mailed. 770 ILCS 60/21(c)
What are the Contractor’s Rights when an Owner Stops Paying on a Project?
If the money is lawfully due and owing to the contractor (always consult with an attorney to know your rights), the contractor can stop performing the work, and the contractor will be immune from any claims due to delay during that time period. 770 ILCS 60/4
Additionally, if payment is not received for a period of at least 10 days, the contractor can abandon the work and pursue a lien on the property. The lien can only be for the amount of work that has already been performed. Also, the contractor is entitled to keep materials supplied by the contractor if they are not incorporated into the improvement. 770 ILCS 60/4
Can a Tenant who performs Improvements on a Landlord’s Property Claim a Mechanic’s Lien?
Yes. Even when there was a provision in the contract prohibiting a mechanic’s lien from being filed on the property by the tenant, the Illinois Appellate Court of the First District held that the tenant had lien rights, treating him like any other contractor.
The court stated the following, in relevant part:
under the broad terms of the Act, any person who contracts with a property owner or his agent for the furnishing of services or materials for the benefit of the land may properly claim a lien against the property. (Delaney Electric Co. v. Schiessle (1992), 235 Ill.App.3d 258, 264, 176 Ill.Dec. 280, 601 N.E.2d 978.) This result obtains regardless of whether the lien claimant may have a leasehold interest in the property. It is the lienor’s performance of the contract, and not his status incident to tenancy, which determines his right to a mechanic’s lien.
Leveyfilm, Inc. v. Cosmopolitan Bank & Trust, 274 Ill. App. 3d 348, 353, 653 N.E.2d 875, 878 (1995).
Bonding over a Mechanic’s Lien
What does it mean to Bond over a Mechanic’s Lien?
When a subcontractor files a mechanic’s lien, sometimes it can cause tension between the general contractor and the owner. In some situations, it can destroy their relationship. Depending on the extent of the business relationship, this could cost the general contractor thousands to millions of dollars in lost future business opportunities.
What if the claim isn’t even valid? For example, if the subcontractor files without any just cause? Shouldn’t the contractor be able to get the lien off immediately?
In a number of states, like Missouri for example, the general contractor is stuck litigating the case to vitiate/invalidate the lien or if the general contractor loses, the property is foreclosed upon.
In a lot of these cases, long before the Court or a jury make a decision, the owner puts significant pressure on the contractor to forces them to prematurely settle with the subcontractor. If the general contractor does not settle these cases immediately, it clouds the owner’s title, which most owners will not tolerate a subcontractor encumbering their property.
Fortunately for general contractors in Illinois, there is the possibility of removing the lien from the property and replacing it with a bond. This is called bonding over the lien or the substitution of a bond for a lien.
What Illinois Statute governs Bonding over a Mechanic’s Lien?
In Illinois, section 770 ILCS 60/38.1 governs the substitution of bonds for mechanics’ liens. As noted above bonding over a mechanic’s lien is one of the most effective ways to relieve the general contractor from getting pressure from the owner.
In Missouri, there is no statute that allows a contractor to bond over a lien. Instead, the contractor is stuck dealing with a battle from two fronts (from the owner and from the lien claimant). The only way of getting the lien off is by having a court adjudicate it invalid or by paying it and receiving a lien release from the lien claimant.
In certain situations, where the lien could be ripe for a slander of title claim, the subcontractor may just release the lien and litigate its contractual claim. This obviously varies greatly depending on the factual circumstances of the case.