Here’s how Illinois contractors could protect and perfect their mechanics liens
By Eric Dobradin
Contractors work hard to repair and improve residential and commercial real estate. Oftentimes, they juggle dozens of subcontractors while trying to keep a customer satisfied. The project management and organizational skills needed to pull off successful projects time and time again are exceptional. Even with the best results, contractors can find themselves trying to collect final payments from customers after the project is, for all practical purposes, substantially complete.
Here are a handful of tips to ensure your claim can survive scrutiny.
- Get the agreement in writing. Ideally, all construction or remodeling projects would have a written contract that has been negotiated by both sides with equal bargaining power. Too frequently, materials are ordered and work begins without a signed contract. When working on an owner-occupied residential property, forgetting to have a signed written contract before starting work, could put your mechanics lien at risk and open you up to potential counterclaims. The Illinois Home Repair and Remodeling Act makes it a deceptive practice to knowingly fail to comply with its disclosure and written contract requirement. Though a violation of the Home Repair and Remodeling Act does not automatically invalidate a mechanics lien. It is a best practice to provide customers a “Home Repair: Know Your Consumer Rights” pamphlet and a written contract signed by the property owner setting forth the total project cost, costs for parts and materials, charges for an estimate, and other basic terms that should be included in a contract.
- Circumstances change over time, as we all witnessed during the height of the pandemic. Customers frequently change their minds about scope, materials and design. Whatever the change may be, get it in writing, even if it is a text message from the property owner replying, “OK, that sounds good.”
- An often-overlooked requirement of the Illinois Mechanics Lien Act is the Contractor’s Sworn Statement to Owner. It is a good practice to always furnish your customer with a sworn statement identifying the subcontractors, their subcontracts, the amounts due or that will become due. While it is true that it is the property owner’s obligation to request a sworn statement, it is also the contractor’s duty to furnish it. If you find your customer holding back funds at some point during the project, furnish the sworn statement of contractor along with an invoice to protect your lien claim and, in certain circumstances, even those of your subcontractors. Do not wait too long to send these documents. A contractor must either record a lien or file suit within four months of the last day of substantial work to enforce the lien against the rights of other creditors, encumbrancers, or subsequent owners.
- Do not rely on publicly available online forms to draft your Claim for Mechanic Lien. The Illinois Mechanics Lien Act is a derogation of the common law and, therefore, the statutory requirements for a mechanics lien will be strictly construed by courts. It is important to make sure your lien claim satisfies each and every element required by the Mechanics Lien Act too much or too little information on your claim for lien. The Mechanics Lien Act states that a claim for lien must (1) be verified by the affidavit of the contractor, its agent, or its employee; (2) describe the work that was performed under the contract; (3) claim a balance due after allowing all credits; and (4) provide a “sufficiently correct” description of the lot, lots, or tracts of land that are subject to the lien claim. What the statute does not say is that you likely need to include when the contract was entered into, the last date that you completed any substantial work on the project, and the correct identity of the parties to the contract. While this may seem straightforward enough, uncertainty can rear its ugly head when, for example, the lien is assigned before or after it is recorded or where a contractor uses more than one contract for estimates and construction. Even an accidental clerical error on the recorded mechanics lien runs the risk of invalidating your lien. Not all fill-in-the-blank mechanics lien forms will be suitable for all mechanics lien claims. A form may request or include blanks for information that is not required or would be inappropriate based on your circumstances, increasing the likelihood of making a binding admission that cannot be corrected or amended.
- Conduct a title search. Certain notices must be given to parties, such as owners, creditors, and other encumbrancers of record. These parties must also be named in a lawsuit. If a party entitled to notice, such as a lender, is not given the notice or not made a party to a subsequent lawsuit, you can lose your right to claim a lien altogether.
- Prepare the lien correctly the first time before it is recorded. While it is true that a mechanics lien claim can be amended, the amended lien may not be enforceable against third-parties, such as bona fide purchasers or lenders.
Mechanics Lien Act is full of nuanced requirements that can become traps for the unwary. Consult with an attorney early in the process to avoid problems after materials and labor have been furnished.
If you have questions about protecting your lien rights or concerns about a notice of lien you received concerning your property, contact the attorneys at Gardi, Haught, Fischer & Bhosale Ltd by clicking on the free case evaluation button below.