Illinois Mechanics Liens INDEX The Mechanics Lien Process - An overview of the process. Identifies the various entities and situations which are affected by the Mechanics Lien Act. What is a Mechanics Lien? The Mechanics Lien Act - The "Secret Gotcha!" The Mechanics Lien Act Has Broad Application Contractor or Sub?     The Mechanics Lien Process WHAT IS A MECHANICS LIEN? The basic concept of the Illinois Mechanics Lien Act is that if an owner of land in Illinois hires a contractor to build or repair a building on the land, and then the owner refuses to pay the contractor, the contractor can sell the land and the building, and take the amount owed plus attorneys' fees and costs of suit out of the sales price. Also, far more people are affected by the Act than the above paragraph would suggest, and even if the involuntary sale of someone's home does not sound harsh enough, consider the following: Property Owners: In some circumstances, the property owner can be forced to pay the contractor twice. Payment without following the process in the Mechanics Lien Act doesn't "count" as a legitimate payment. Bankruptcy can't save you either - a mechanics lien is a "secured debt" and so gets paid first in priority out of the sale of the real estate. The property owner must properly complete the paperwork and follow the procedures in the Act to avoid being stuck with paying twice or losing the property. Mortgage Lenders: A mechanics lien generally has priority over a prerecorded mortgage. Unlike almost everywhere else in the United States, Illinois property law creates an exception to the "first in time" rule that automatically defeats most other liens and mortgages in the Mechanics Lien Act. An Illinois mechanics lien even has priority over your mortgage in bankruptcy. However, the Act itself does provide means to decrease the value of the lien or to eliminate it entirely. Contractors, Subs, and Suppliers: Despite the above descriptions of how powerful a mechanics lien can be against an owner who refuses to pay, mechanics liens are tricky and fragile. The paperwork for the job (contract, change orders, waivers, etc.) can easily damage or eliminate your lien rights, and sometimes the lien is the only way to get paid. Also, a contractor that handles money in a manner prohibited by the Act can be sued and even convicted of several crimes. What information is entered into the various forms, as well as which form to use and when, should be done carefully to protect these rights. THE MECHANICS LIEN ACT - THE SECRET GOTCHA! Clearly this paragraph is written for property owners and lenders who may not be familiar with mechanics liens. It would be a very unusual contractor or sub in Illinois that did not have at least a fundamental familiarity with lien waivers and related paperwork. Chasing a ball into the street does not always lead to being hit by a car, and ignoring the Mechanics Lien Act does not automatically result in a lien being filed against the property. However, it does not follow that the above activities are either a good idea, or even safe to do. When it comes to the idea of losing title to your real estate, losing the priority of a mortgage, or not getting paid for your work, the possibility should be enough of a concern to justify learning more about what the Act requires. Many catastrophes are avoided with a little knowledge, like simply looking both ways before entering the street. THE ILLINOIS MECHANICS LIEN ACT HAS BROAD APPLICATION A. Contracts. The Illinois Mechanics Lien Act is automatically included as a matter of law in every construction contract in the state of Illinois, even if it is not mentioned anywhere in the contract, and even if the parties to the contract are not aware of the existence of the Act. Furthermore, attempts by the parties to the contract to avoid compliance with the Mechanics Lien Act by agreement are null and void, and will not be upheld in Court. B. Who is Included. The usual four categories of people and businesses affected by the Mechanics Lien Act are owners, lenders, contractors, and subs. However, because of the broad definitions of each of these according to the Act, it includes more than would be immediately obvious, such as the following: Tenants, Architects, Engineers, and Property Managers: These categories can hold unusual dual capacities under the Act. On the one hand, they may sometimes form contracts that affect the owner's title and the mortgage. But they can also be contractors who are themselves entitled to file mechanics liens against the property. Condominium Associations: Because the mechanics lien can lead to the sale of a condo unit, the association will want to monitor, and perhaps defend or settle the matter, or even purchase the property in a severe case. Work on the common elements can lead to a mechanics lien problem, as can work inside a unit. Insurance Companies and Mortgage Lenders: Anyone acting as a construction escrowee or similarly should know and comply with the fiduciary requirements of the Act. The fiduciary obligations run both to owners and contractors, and noncompliance has both civil and criminal consequences. Individual Workers: The individual worker is not only a potential lien claimant, but also holds a superior right over other lien claimants. Wages for labor are to be paid first, and the Act provides a procedure by which a dispute or challenge to wage claims must be filed within ten days after it is filed. C. Varieties of Work: A "contractor" or "subcontractor" can be, but does not have to be, one of the usual trades. The Act permits essentially anyone with an agreement for work or materials at the property to file a lien claim against the property. The following is only a sample of some valid lien claimants (in no particular order): carpenter, plumber, welder, truck driver, bricklayer, crane operator, landscaper, house mover, architect, structural engineer, professional engineer, lumberyard, concrete dealer, surveyor, well driller, machine installer, carpet dealer, carpet installer, sign maker, painter, electrician, property manager, tenant. This list is intended to show a wide range of workers and materials dealers - it is not complete or exhaustive. CONTRACTOR OR SUB? The procedure for creating a mechanics lien varies, depending on whether the lien claimant is considered a contractor or subcontractor. The words "contractor" and "subcontractor" have precise and unusual definitions under the Act. A contractor is anyone who has a contract directly with the owner or the owner's agent. The dollar value of the contract makes no difference. A multibillion-dollar project design/build agreement is treated as the same (for this purpose) as an agreement to deliver three sheets of plywood to a single-family home. If the agreement is directly with the owner or owner's agent, the other party is treated as a contractor and must comply with the contractor's procedure for establishing a lien. On the other hand, everyone else is a subcontractor. That is, if the agreement for the work or materials is with someone other than the owner or the owner's agent, then the procedure in the Act for subcontractors must be followed. There is no special designation for "subsubs" or those farther down the chain; for purposes of the Mechanics Lien Act, they are all referred to as "subcontractors" and must follow the subcontractor's procedure. The classic example of this would be that the owner hires a general contractor, which in turn parcels out the work to a roofing sub, an electrical sub, a masonry sub, and so on. In that case, each of the entities fits into a clear role under the Act. The question of who is a contractor and who is a subcontractor can become somewhat tricky when the transaction is more complex. If the work on the property is permitted under a lease, and the tenant hires an architect, who in turn selects the general contractor, who then picks the various subs, it can be unclear precisely where "owner" stops and "contractor" begins. Is the tenant an "agent of the owner?" How about the architect? Further, in the very common event that corporations are the parties to the contract, a question of proper authority to enter into the contract may confuse the issues and even invalidate the contract. If possible, this matter should be clarified in a written contract with the owner. However, there is no simple answer when questions of this nature arise; if the classification of the parties is being disputed, the matter should immediately be referred to an attorney for careful investigation.