What Is a Mechanic's Lien?

If you are like most people, your house is your most valuable asset. And, 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. (Yes, I speak from personal experience.) Other problems, however, can be solved by knowing the basic information regarding Mechanics Liens.

Hardly a week goes by where I don’t receive a call from a client who is having Mechanics Liens problems in connection with home improvements. Virtually all of these problems could have been avoided had the homeowner known the basics about 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.

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.

Mike von Behren of Michael von Behren Builders, Inc., a local general contractor, follows these procedures. He states that “not only does it provide us, as the general contractor, with protection, it also keeps our relationships with suppliers and subcontractors harmonious. And for the homeowner, it gives them that all important peace of mind that they won’t have to pay for anything twice. We find that following the Act gives everyone protection. Even if the homeowner doesn’t request it, it’s still part of our normal operating procedure”.

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, progress payments to the general contractor are made through 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.

The Illinois Mechanics Lien Act is a complicated statute. Failure to follow the Act’s formalities can have drastic consequences for the homeowner. Documents presented to the homeowner may look sufficient to meet the procedure outlined above, but may well 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. As with most areas of your personal finance, there is no excuse for not knowing how to protect your assets.