The Illinois Mechanics’ Lien Act ( 770 ILCS 60/1 et seq) provides a remedy to a contractor who provides improvements to real estate by allowing him to lien the property (place a hold on the property to secure payment).
Once the lien is perfected, it clouds the property’s title and the contractor can sue to foreclose the lien and force a sale of the property.
Without this lien remedy, the contractor is at the mercy of the general contractor or owner. If either runs out of money, the contractor gets nothing for his labor, materials, time and effort.
Cast of characters:
Owner = developer, person or entity that owns real estate
General Contractor (or Prime Contractor or Original Contractor or “GC”) = party that contracts with Owner
Subcontractor = party that contracts with General Contractor
Sub-subcontractor = party that contracts with Subcontractor
Lender (Mortgagee, Incumbrancer) = mortgage lender that funds construction activities on real estate
Notice and Timing Rules
General Contractor: “4 months/2 year rule”. 770 ILCS 60/7. The GC must record lien within 4 months of last date of performance and must file suit to foreclose his mechanics’ lien within 2 years of last performance on the project.
Subcontractor: “90 days/4 months/2 years”. 770 ILCS 60/24. The Subcontractor must serve notice to Owner within 90 days of last performance, must record its lien within 4 months of last performance, and must file suit to foreclose within 2 years of last performance.
Subcontractor on owner-occupied, single-family residential property: “60 days/90 days/4 months/2 years”. 770 ILCS 60/5. A subcontractor on this type of property must serve notice on owner within 60 days of his commencement of work that he is a subcontractor on the property. He then must serve notice on the owner of his intent to lien within 90 days of his last performance, record his lien in the Recorder’s offices within 4 months of last performance and file suit within 2 years of his last performance.
Venue (where to file): the lien is filed in the Recorder of Deeds for county where property is located (e.g. Chicago property = Cook County Recorder of Deeds; Waukegan property = Lake County Recorder of Deeds; Wheaton = DuPage County Recorder of Deeds). 770 ILCS 60/9.
Elements of a Mechanics Lien Claim (the Complaint):
A general contractor mechanic’s lien claimant must establish: (1) a valid contract; (2) with the owner of the property or someone authorized to contract on behalf of the owner; (3) for the furnishing of services or materials; and (4) performance of the contract or a valid excuse for non-performance.
A contractor can enforce a mechanic’s lien by proving that he substantially performed the contract in a workmanlike manner.
To perfect a mechanics lien, the subcontractor must serve the 90-day notice and record his lien within 4 months while a general contractor must record his lien within 4 months of last performance.
A properly perfected lien will “relate back” and attach as of the date of the owner-general contractor prime contract. This is important when the issue of priorities arises (e.g. when two liens are recorded against the same property, what takes priority?)
The general contractor does not have to serve a 90-day notice because he has contracted directly with the owner and so the owner presumably knows the general contractor’s identity.
Filing Suit to Foreclose the Lien
While recording the lien will certainly blemish the owner’s title and make it difficult to sell or refinance the property, to really go for the jugular, the contractor must file suit to foreclose his lien. This sets in motion an eventual judicial sale of the property and provide sales proceeds from which to compensate the lien claimant.
To that end, a contractor suing to foreclose his lien must allege (a) a brief statement of the contract, (b) the date of the contract, (c) the date of last performance under the contract, (d) the amount unpaid, (e) a description of the premises, and (f) any other necessary facts. 770 ILCS 60/11(a).
The contractor should name as defendants the owner, general, all other lien claimants and mortgage lenders on the property. My experience is the vast majority of mechanics’ lien cases settle before trial. However, the end-game is a foreclosure sale of the property with the court divvying up the sale proceeds among the various competing claimants (typically, the mortgage lender, general contractor, and at least one subcontractor).’
If You Didn’t Record the Lien On Time
If you fail to record a lien (such as in a situation where a client doesn’t tell you about its claim until more than 4 months have passed – it happens), you can still sue for breach of contract and alternatively for quantum meruit/unjust enrichment. The limitations period for written contracts is 10 years (measured from the date of breach); for oral contracts, 4 years and for quantum meruit – 5 years. Obviously, with these remedies, you run the risk of an insolvent or judgment-proof defendant.