In large part, the Illinois Bar Association’s article and the Cypress Creek case deals with the issue of Lien Priority (Lien Priority Tag).  We just this week posted an article defining lien priority and explaining its importance.  The ISBA article author, Richard Jones Jr., rests his claim that the mechanics lien may be dead on the idea that an Illinois lien after Cypress Creek has less priority than a construction loan.  Here is some of his fatalistic comments:

The Illinois Supreme Court recently held that a construction lender is automatically vested with a status equivalent to perfected mechanic’s lien claimants for all disbursements on the loan…The effect of this decision is that mechanic’s lien claims will be diluted by construction loans, substantially reducing the value of mechanic’s lien claims, and emasculating the protection provided by the Mechanic’s Lien Act.

Wow…emasculating?  I thought his title was just a way of grabbing attention, but is Mr. Jones really arguing that the post-Cypress Creek  mechanic’s lien is dead and worthless to contractors and suppliers?  Based on a line in his closing paragraph, it seems so: “After Cypress Creek, the mechanic’s lien no longer provides protection to contractors.”

Mr. Jones doesn’t say the lien “no longer provides the same protection to contractors.”  He just flatly concludes that the lien fails to offer any protections whatsoever.

I think Mr. Jones has really gone overboard in his article. Lien Priority can be a big deal, but as I explained in “Lien Priority & When It Matters,” lien priority is one of those concepts that only rarely rears its ugly head.  Usually, construction projects can pay off its lien claims without a full-on foreclosure on the property, and thus, the fight between lien claimant and construction lender never arises.

Plus, the Cypress Creek decision doesn’t really put Illinois at odds with mechanic lien jurisprudence elsewhere in the United States. State-to-state, you could be pretty successful at guessing who has priority – lien or lender – by flipping a coin. Each state has their own theories and preferences in this regard, and it doesn’t make mechanic lien claims in the lender-preferred states all that much weaker than liens in opposite-minded states.

The mechanics lien is alive and well in Illinois.  The Cypress Creek decision is problematic for a very small percentage of lien claimants, but not catastrophic.  While I personally would prefer to see it have gone the other way, I don’t think your everyday lien claimant will ever have a reason to care about it.  And as suggested by DuaneMorris’ JDSupra article on the Illinois Supreme Court case, there’s a Senate bill floating around in Illinois to shake up lien priority law, and thus “the law of relative priorities of mechanic’s lien and construction mortgages in Illinois remains unsettled and may undergo further changes and interpretations in the near future.”

Thanks to Laurie & Brennan, LLP for calling our attention to a recent Illinois Appeals Court decision that re-iterates this important post-filing step. The case — Parkway Bank and Trust Co. v. Meseljevic (click to read full text) — holds that a mechanic lien is invalid as to a construction lender because the lender was not provided with notice of the lien within 90 days after the claimant’s completion of the work.

At issue in LaSalle Bank, N.A. v. Cypress Creek 1, LP was a battle between a construction lender and a mechanic lien claimant over who was entitled to the proceeds for a sale of liened property. Glavoz succiently summarized the decision with this:

The Justices decided that a lender gets priority to the extent their loan proceeds paid for property improvement, regardless of whether the contractors paid with those proceeds timely, or properly, perfected mechanics liens.

You can read the full text of the opinion here.

A mechanic lien’s priority can become very important when project funds are tight, and a foreclosure of the property is required to get paid. In the event there’s not enough money in the property sale to cover all the liens and mortgages, the question becomes this: Whose claims get paid, and whose don’t?

The answer depends a lot on the state’s priority of claims.  In the past, we’ve posted a number of times about the priority of mechanic liens.  We have a “Lien Priority” tag on this blog, which you can read here.

Huh?

The different requirements can be attributed to a split in the Illnois appeal districts on this question.  The First District held (ten years ago) that liens must identify the last date a claimant provided work/materials.   The Second District (just this October) said that the Mechanic Lien Act doesn’t require this, and neither should the courts.

The recent Second District case is National City Mortgage v. Bergman, and I have to say that I completely agree with the Second District.  Why?  The Berman court says it best:

Section 7 does not command that a lien claim contain a contract completion date.  To construe section 7 to require a contract completion date would frustrate those who have, in good faith, relied on the plain language of the statute in submitting their lien claim.  Any policy arguments raised by National City need not be discussed at great length.  Balancing dueling policy concerns is a more appropriate role for the legislature than for this court.

You can listen to the oral argument in the Berman case at the 2nd District’s website.

This creates a problem for Illinois contractors, because as a justice on the Bergman panel states in the argument, “we don’t have the power to overrule Merchants Environmental Industries, Inc. v. SLT Realty Ltd. Partnership (the First District case), we can only disagree with them.   In other words, those counties controlled by Merchants (Cook) must still follow the Merchants decision.  Until of course, the Supreme Court resolves the disagreement.

We’ll keep an eye on this case as it crawls up to the Supreme Court (presumably).  Stay tuned.

The Act requires any person “engaging in the business of home repair and remodeling…to provide its customers a copy of the ‘Home Repair: Know Your Consumer Rights’ pamphlet prior” to the start of any work, if the contract exceeded $1000.00.  (Download PDF here:  Home Repair: Know Your Consumer Rights)

Clearly, this applies to a lot of folks.    The controversy in Illinois didn’t necessarily concern the pamphlet requirement itself, but the punishment levied against those who failed to provide the pamphlet.   According to the way the law was previously written (and / or interpreted by the courts), contracts were being invalidated as a whole and mechanic liens were disallowed.

In an article written by Illinois real estate attorney for the Illinois State Bar Association, Adam Whiteman summarized the Act’s problem with this:

The Home Repair Act was not intended to automatically invalidate contracts and mechanic’s liens in the face of any technical violation. Such a result would have the effect of ignoring over 100 years of interpretation and application of the Mechanic’s Lien Act (770 ILCS 60/.01 et seq.). The Mechanic’s Lien act permits a lien based on an oral contract. As it is presently interpreted, the Home Repair Act forbids oral contracts in connection with home repair and remodeling projects.

So, the Home Repair and Remodeling Act is reportedly “fixed,” as per an act through the Illinois General Assembly and effective July 12, 2010.   Instead of the non-compliance resulting in invalid contracts and mechanics liens, the new law allows homeowners to pursue a remedy by suing the contractor under the consumer fraud act (a serious remedy, but not as severe).

This appears to be good news for Illinois remodelers and repair workers.   However, the pamphlet is still important.

Section 7 of the Illinois Mechanics Lien Act has been amended to include the following language:

(d) A contractor for improvements of an owner-occupied single-family residence must give the owner written notice within 10 days after recording a lien against any property of the owner.   The notice is served when it is sent or personally delivered.  If timely notice is not given and, as a result, the owner has suffered damages before notice is given, the lien is extinguished to the extent of the damages.  The mere recording of the lien claim is not considered damages.  This subsection does not apply to subcontractors, and it applies only to contracts entered into after the effective date of this amendment [January 1, 2010].

Read the full text of the Public Act on the Illinois General Assembly website.

So, starting January 1, 2010, all original contractors on owner-occupied single family residences must give this notice to the owner post-filing a lien.

If you order your lien through Zlien, sit back and relax, because we always send notice to the owner, certified mail.

Related articles by Zemanta

• Lien Law Online eLert for 1/13/2010 – Illinois (lienlawonline.blogspot.com)
• Can a Sub Still Have a Valid Lien Without Supplying an Owner The Required 60-Day Notice?… An Exception to Weather-Tite? – Crawford Supply Co. v. Schwartz, et al. (illinoisconstructionlawblog.com)

A new law blog on Mechanic Lien Law in Illinois just posted on this subject as the law applies to its state.   The bottom-line:  it’s tough for lien waivers to pass legal muster in Illinois.

Here’s a quote from the post:

Under Illinois law, courts regularly will not enforce a lien waiver because it is contrary to public policy and the Illinois Mechanics Lien Act. The Mechanics Lien Act provides that no contract for construction services shall include a lien waiver provision. The law’s intention is to protect contractors and sub-contractors who perform work on a property and are not paid for their labor and materials.

So contractors and suppliers in Illinois may not be restricted by “no lien” clauses in their contracts.  If you’re ready to file a lien in that state, Zlien can help.

The law firm of Foran, Glennon, Palandech & Ponzi PC has a wonderful blog entitled the Illinois Construction Law Blog. Recently, the blog has produced several articles commenting on the congressionally proposed amendments to the state’s lien laws.

The blog’s authors have raised concerns about the vague and often redundant nature of the proposed changes. In fact, the authors find that the bill’s purpose could simply be served “if section 32 [of the bill] were just removed.”

Regardless, the bill’s final change actually seems to have some teeth. The end-all-be-all would be to eliminate subcontractor liens against owner-occupied residences unless their is a provision in the general contract providing for such a lien. The law also adds the following penalty:

"(iv) The failure of a contractor to include the statement contained in paragraph (i) on the face of the contract relieves the owner of the property of any legalobligation to pay any subcontractors under this Act."

It certainly seems that Illinois is taking a step towards restraint of contractor rights, but another one of the firm’s posts gives an indication that the courts are still with the contractors, in the good fight to get paid.

The interesting case of Springfield Heating v. 39477-55 King Drive at Oakwood, LLC, et al (1st Dist., Doc. No. 1-07-2987), provides a snapshot of judicial interpretation of the state’s fraudulent claim restrictions.

In Springfield, a subcontractor entered into a contract to do substantial remodeling of the Chicago’s Home of Chicken and Waffles. The Illinois Construction Law Blog has a great synopsis of the case which can be found on their blog.

After terminating their contract, the sub brought  suit to foreclose two liens it had filed against the two buildings it worked on, and to bring equitable claims for unjust enrichment and quantum meruit (for unjustified enrichment of the Defendant). The liens sole issue was that each lien contained the full amount of the project debt, essentially meaning that the sub had claimed double the amount due. Because of this error, the trial court found that the liens were fraudulently brought and must be dismissed, as opposed to amended. Furthermore, the judge dismissed the equitable actions.

On Appeal, the court found that the statute which provides for the cancellation of fraudulent liens, requires the defendant to show an intent to defraud. Certainly, in this scenario, there had been no such attempt, but rather a last ditch effort to protect the sub’s sole means of recovery against the owner, where there was confusion about how to file the lien and sever the amount due.

As the blog’s author states:

“While no one is going to recommend filing a lien that hasn’t been proofed and double-proofed, it’s nice to see the intent of the law given form here to help people get paid even if a small technical error arises.”

The court’s ruling just goes to show that the subcontractor’s one friend left is the construction lien – many times, its sole source of recovery against an owner.

]]> http://constructionlienblog.com/2009/03/illinois-mechanics-liens-chicken-waffles-case-ensures-protection-to-subcontractors/feed/ 1 http://constructionlienblog.com/2009/02/illinois-contemplating-amendment-to-mechanics-lien-statute/ http://constructionlienblog.com/2009/02/illinois-contemplating-amendment-to-mechanics-lien-statute/#comments Wed, 18 Feb 2009 16:00:28 +0000 Scott Wolfe Jr http://constructionlienblog.com/?p=522 It appears that the Illinois legislature is contemplating an amendment to its mechanic’s lien statute, as reported last week by the informative Illinois Construction Law Blog. According to that blog post, the guts of the amendment would require contractors (non-subs) to given written notice on owner-occupied single family residences prior to filing a lien.

According to the blog, this requirement already exists for subcontractors, and the purpose of the amendment would be to extend the requirement to contractors who contract directly with the property owner.

The Illinois Construction Law Blog does weigh the pros and cons of the bill.

In their discussion, they mention that the bill makes sense because homeowners cannot be considered as sophisticated as commercial property developers.

On the other hand, however, since the bill would only require notice before filing the lien, the blog states that notice could be given the day before the lien is filed. Of this time frame, the author asks “what protection does that afford the home-owner?”

A similar requirement exists in Louisiana, according to Wolfe Law Group’s Construction Law Monitor. They describe the requirement as follows:

Notice is required whenever you are working on a residential project, and you contract directly with the owner of the property, who also lives in the residence.

The type of notice required is called the “Notice of Lien Rights.”

The Notice of Lien Rights to be sent to owners in residential projects is very important, because the law requires that it be provided before work begins, and not as a condition to your construction contract.

Read full article here.

The difference between the Louisiana requirement and the requirement in Illinois, however, is that in Louisiana notice is required before work begins, and in Illinois, its required only before filing the lien. Perhaps the goals of the Illinois legislature would be better achieved by a rule similar to that of Louisiana’s?

Nevertheless, for the time being, the requirement does not exist at all for contractors in Illinois, and is only a twinkle in the legislature’s eye. You can track the progress of the bill at this link.