What is a Mechanic’s Lien?
The purpose of a Mechanic’s Lien is to ensure that contractors and subcontractors who work on a real estate improvement project are paid for the labor, materials, and/or machinery they have provided to that project. The Illinois Mechanics Lien Act (770 ILCS 60/0.01, et seq.) governs Mechanics Liens in Illinois. This Act allows contractors and/or subcontracts to file a lien on the property, so that the property cannot be transferred to a new owner without satisfying the liens placed upon it. A properly recorded mechanics lien also allows the lien holder to foreclose on the property and have it sold in order to satisfy the lien.
A Contractor Mechanic’s Lien is available to the contractor who has been directly contracted with the owner of the property or his/her agent to complete work. The best documentation would be an executed and valid contract such as a purchase order or accepted bid/quote sheet with signature for material and/or labor. If the property is owned by more than one individual, only one owner’s agreement to contract is enough if the other owner(s) is aware and fails to protest. Verbal agreements may also be enforceable and may need additional supporting documents and the involvement of an attorney should a dispute arise as to the scope and cost of the project.
A Subcontractor Mechanic’s Lien is available for those workers that have been contracted by someone other than the agent or owner of the property, such as a general contractor who brings in a sub to complete a part of the property enhancement project. It is important to note that if your company supplies materials without labor, that you would still be entitled to a Subcontractor Mechanics Lien.
A number of liens can be placed on a property, so the contract date determines the effective date of the Mechanic’s Lien and the priority of the lien. A lien placed on the property prior to the date of the contract will have priority over your lien, but you will have priority over the liens placed after your effective date. Mechanic’s Liens also hold priority over earlier recorded mortgages to the amount of the property value’s increase from the improvement project.
Strict deadlines exist to record the lien. For both general contractors and subcontractors, a lien must be filed with the county Recorder’s office no later than 4 months after the completion of work. The claim must include:
- Statement of work performed
- Date work was complete
- Balance due to the contractor after any credits
- A property description and PIN (Property Identification Number)
- Names of Owners of Record, name of one owner/agent you contracted with
- List of any mortgages on the property
Subcontractors have an extra step to complete in addition to the 4-month filing deadline. Within 90 days of the last date the subcontractor worked on the property, a 60-day notice of the Subcontractors Mechanic’s Lien claim must be served to the owner of the property. This notice must include information similar to the information required to file the lien. This step may be skipped if the general contractor has a signed agreement with the owner/agent specifically listing your company for a segment of the project (Section 24 of Mechanics Lien Act). The time to file suit to foreclose on the lien may be advanced if the owner issues a written notice to commence suit under section 34 of the Act. Suit must be commenced within 30 days of receiving the notice or else the matter may be forfeited
Once you file a Mechanic’s or Subcontractor’s Lien, in order to preserve your rights, you will need to file suit to foreclose on the property within 2 years of the last day you worked on the job. The suit must include the owner and any parties with interest in the property, such as mortgagees and Mechanics Lien holders. The suit will request a court order for the sale of the property in order to satisfy the lien(s). Mechanic’s Lien holders are entitled, by law, to 10% interest per annum on unpaid work/material and attorney fees for enforcing the lien.