Mechanics' Liens

With this month’s focus on engineering and architecture, it seemed an appropriate time to talk about Mechanics Liens.  I’m going to start with some insight from a homeowner’s perspective (which will generally apply to owners of commercial property) and then briefly discuss the issue from a lien claimant’s perspective.

If you are like most people, your house is your most valuable asset.  The chances are that eventually you will want to make some improvements to your house.  Some problems may be unavoidable - - such as a disagreement with your spouse over the choice of wall coverings.  Other problems, however, can be solved by knowing the basic information regarding Mechanics Liens.

What is a Mechanics Lien?  In short, a Mechanics Lien gives someone who furnishes goods or services to construct or improve real property a lien on that real property by which payment can be enforced.  Mechanics Liens in Illinois are governed by the Mechanics Lien Act.  Its provisions are automatically included in every contract regarding improvements to real property.  Architectural and engineering providers are generally allowed to take advantage of the statute.  

The typical problem a homeowner faces is when, after paying the general contractor in full, a subcontractor or material supplier shows up on the homeowner’s doorstep claiming never to have been paid.  Those subcontractors or material suppliers likely have a valid Mechanics Lien against your property, which they can enforce through foreclosure – which means the property is sold to satisfy the debt.  Faced with this situation, most homeowners will pay, again, rather than face such drastic consequences.  Although that homeowner may well have a claim against the general contractor, that claim will likely need to be enforced through litigation.

So, how can the homeowner avoid this problem?  The well-advised homeowner will require the general contractor to provide a list of all subcontractors and material suppliers as well as the amounts, if any, due each.  Use your common sense - - if the project involves electrical work, is an electrician on that list?  If it involves a new roof, is the supplier of the roofing materials included?  Make an effort to know who is doing work on your home.  Introduce yourself to the various workers.  Ask them who they are and what they are doing.  Make notes and compare your notes to the list provided by the general contractor.  This list is called a Contractor’s Sworn Statement, and it is the duty of every general contractor to provide such a statement.  Most reputable contractors will voluntarily follow this procedure.  Not all, however, do - - perhaps from ignorance of the law or for other reasons. 

When the time comes to make payments to the general contractor, the homeowner should make sure that he or she receives lien waivers from each subcontractor or material supplier on the list before payment is made.  Assuming this procedure is followed, the homeowner will almost always be protected from claims of unlisted suppliers or subcontractors.  The homeowner can also gain an extra layer of protection by insisting that he or she be allowed to make payment directly to those on the list.  Although this may require additional inconvenience, it may well be worth the effort. 

For some larger projects (including new home construction) the payment process is handled with a construction loan escrow established with a title company.  This is usually done at the insistence of your lender.  As the homeowner, however, you should know that the escrow is set up to protect the lender, not you.  In other words, a construction loan escrow is no excuse to relax your diligence.

From a lien claimant’s perspective there are generally two issues: (1) ensuring that your lien filing strictly complies with all elements of the statute and (2) following all of the deadlines. 

Courts strictly enforce the statute, which means that even the slightest mistake can void a lien.  I’ve seen many liens filed without the assistance of a lawyer, and in the vast majority of cases they are fatally flawed.  So, either completely familiarize yourself with the statute, or ask for professional help.

For a lien claimant who is in a direct contractual relationship with the property owner (e.g., a general contractor), a lien must be filed within four months of the substantial completion of work.  And a suit to enforce the lien must be filed within two years of that date or the lien will automatically expire by operation of law.

For the claimant who is not in a direct contractual relationship with the owner (e.g., a subcontractor who only contracts with the general contractor) there are some different deadlines and some very specific rules as to whom notices must be given – all of which are beyond the scope of this article.  Further, there are separate rules for residential and commercial properties.  Subcontractors who are having payment issues would be well advised to consult legal counsel at the first inkling of a problem.

The Illinois Mechanics Lien Act is a complicated statute.  Failure to follow the Act’s formalities can have drastic consequences for both the property owner and lien claimant.  Documents that appear sufficient to meet the procedures outlined above may actually be deficient for a myriad of reasons.  When in doubt, your best bet is to consult an attorney conversant in this area of the law.