Mechanics Lien Issues Ryan A. Hiss Lyman & Nielsen, LLC CFMA Presentation April 18, 2012

Illinois Mechanics Lien Issues Private Projects-Lien on real estate & funds due GC 3 Requirements for Perfecting Mechanics Lien 1) Serve Notice of Claim within 90 days of last day of work (certified mail, return receipt requested, or personal service) 2) Claim for Lien recorded within 4 months of last day of work 3) Lawsuit filed within 2 years of last day of work

Myths regarding liens on Private Property

Myth #1 If a subcontractor fails to serve a notice of claim within 90 days of last day of work, it has no lien rights.

Myth #1 Not necessarily. If a sworn statement provided by general contractor or subcontractor to owner identifies the subcontractor and shows an amount due or to become due, the owner has notice of the subcontractor’s claim. No 90 day notice is needed.

Myth #2 If I do not record my claim for lien within 4 months of my last day of work, I no longer have any lien rights.

Myth #2 The lien can be recorded up to 2 years after your last day of work. – Only good against third parties if recorded within 4 months of last day of work. – Good as against owner if recorded within 2 years of last day of work.

Myth #3 If a subcontractor serves its notice of claim within 90 days of its last day of work, and records its lien within 4 months of its last day of work, it has a valid lien and will collect the amount it proves it is due and owed.

Myth #3 Not necessarily. – There are various defenses that can defeat a validly perfected lien, including: If the subcontractor was not shown on any sworn statement provided to the owner and the owner has paid out the full contract price by the time it receives the notice of claim, then the subcontractor may not be able to collect on its lien If nothing is due and owed to the party with whom you contracted at the time the notice of claim is served, the subcontractor may not be able to collect on its lien

Myth #4 You have 2 years from your last day of work to file a lawsuit to enforce your mechanics lien.

Myth #4 Not always. If Owner or other party with interest in the property serves a Section 34 demand on the lien claimant, the lien claimant is required to file a lawsuit within 30 days of receipt of that claim or forfeit its lien claim.

Myth #5 If under the AIA Contract, the General Contractor provides a schedule of values and payment application (G ) as required in the contract, it does not have to provide a sworn statement if requested by owner.

Myth #5 Definitely not true. If the owner requests a sworn statement from the general contractor, the general contractor must provide one in order to have a right to payment, regardless of what the contract says.

Illinois Mechanics Lien Issues Priority Issues for Mechanics Liens LaSalle Bank National Association v. Cypress Creek 1, LP, 242 Ill.2d 231 (2011) Priority date for liens is the date of the general contract, not the subcontract

Illinois Mechanics Lien Issues Must timely perfect your claim for lien for priority If work was performed on multiple units or multiple lots, must timely perfect as to each unit or lot

Illinois Mechanics Lien Issues All timely perfected, priority claims for lien will share the proceeds pro rata if insufficient to cover the entire amount of each lien. Timely perfected liens have priority over third party encumbrances recorded after the date of the general contract.

Illinois Mechanics Lien Issues With regard to prior encumbrances on the property, the prior encumbrance takes priority to the extent of the value of land at the time the general contract was entered. Timely lien claimants take priority as to the value of improvements erected on the property, or the enhancement of property (market price, sometimes contract price).

Illinois Mechanics Lien Issues Two pots of money for sale proceeds – 1. Value of the land (Lenders) – 2. Value of improvements (Lien claimants)

Illinois Mechanics Lien Issues Cypress Creek – Lien claimants priority is with respect to the value of the property attributable only to those improvements for which the lien claimant furnished labor or materials. – Lender gets “credit” for value of enhancements to property by work paid with loan proceeds and which never became subject of perfected lien.

Illinois Mechanics Lien Issues Current legislation – Passed Illinois Senate – Before the House – Lender’s priority is only as to the value of the land. – Lien claimants priority is over value of improvements in total, not just value related to the lien claimant. – Lender does not get share of value of improvements for work performed by those paid with loan proceeds and not perfecting lien claims.

Illinois Mechanics Lien Issues Public Projects – Lien on Funds due the GC 3 Requirements for Perfecting Mechanics Lien 1) Serve notice of claim before owner pays out all funds (certified mail, return receipt requested, or personal service) 2) File lawsuit for accounting within 90 days of serving notice of claim 3) Serve copy of lawsuit on public entity within 10 days of filing the lawsuit

Illinois Public Payment Bond Claims Claims against a Payment Bond Must serve verified Notice of Claim within 180 days after date of last item of work or last item of materials. Either personal service or, certified or restricted first class mail, delivery return receipt requested limited to addressee only. State projects: serve on officer, board, bureau or department awarding contract Local Govt. projects: serve on Clerk or Secretary of the political subdivision

Illinois Public Payment Bond Claims Claims against a Payment Bond – New as of January 1, 2012 – File lawsuit to enforce bond claim within 1 year after last day of work

Illinois Public Payment Bond Claims Requirements for bond claim expanded: – Name and address of claimant – Name of contractor for the government – Name of party who employed the lien claimant – A brief description of the public improvement – A description of the claimant’s contract, describing the work done by the claimant and stating the total amount due and unpaid as of the date of the notice – Verified