The world of mechanics liens can be a foreign and treacherous place for those contractors and property owners unfamiliar with the terrain. The unwary subcontractor or property owner can step into traps, with disastrous consequences.

For example, an unwary contractor can perform flawless work at a jobsite but still not receive payment for that work simply because the contractor misses a deadline for the perfection of a mechanics lien. On the other hand, an unwary property owner can pay a contractor the full contract price and then learn that liens have been filed by subcontractors who never received payment from the contractor.

All too often, a general contractor receives payment from a property owner for work performed at a jobsite and then absconds with the money or goes defunct without paying the subcontractors who performed the work. In this situation, litigation arises between the subcontractors and the property owners to resolve the unfortunate dilemma of who should bear the loss created by the absent general contractor.

The Illinois Mechanics Lien Act sets forth the very strict rules and deadlines which govern how this dilemma is resolved. It is vitally important for subcontractors and property owners alike to know how to protect themselves under this Act.

Subcontractors

A subcontractor can preserve a mechanics lien in one of three ways:

1) The subcontractor can serve a Notice of Claim for Lien within 90 days after the work is substantially completed. This Notice must be served personally or by registered or certified mail with return receipt requested. The Notice can be served upon the owner of record, upon the owner’s agent, architect or superintendent having charge of the building or improvement, and/or upon the owner’s lender. The best practice is to serve anyone who might claim to have an ownership interest or claim to represent the owner.

In addition to this 90-day Notice, a subcontractor performing work for a single family owner-occupied residence must also notify the occupant of this residence (either personally or by certified mail) within 60 days from the first furnishing of work.

2) If the owner is a non-resident or cannot be found in the county where the improvements occur, the Notice of Lien may be filed with the Recorder of deeds in the county in which the property is located. However, at the foreclosure suit to enforce the lien, the subcontractor must demonstrate that due diligence was exercised to locate the owner.

3) There is no need to file a Notice if the contractor has delivered a sworn contractor’s statement to the owner which shows the name of the subcontractor, the amount of the contract, the amount of work performed and the amount due and owing to the subcontractor.

The best practice for the subcontractor to follow is to send the Notice to the owner and record the lien in the county in which the property is located.

The subcontractor then has two years from the date the work was substantially completed in which to file a lawsuit suit against the owner. However, in order to prevail against anyone other than the owner with an interest in the property (e.g., lenders), the subcontractor must protect the lien against them by recording the Notice of Lien (or by commencing of suit and the filing of a lis pendens notice) within four months of having substantially completed the work.

Owners

Property owners can also take important steps to protect from having a lien filed against their property.

The first thing an owner must do before signing a contract is the necessary homework on the general contractor and all subcontractors. The owner should deal only with licensed contractors and check their license status. The owner should also check the local courthouse to see if any of the contractors has a history of litigation for non-payment of debts. In addition, the owner should check with suppliers and workers about the payment history of the contractors involved.

The owner then should obtain a written contract that includes the following:

•A schedule that demonstrates when specific construction activities will be completed and the projected payments tied to the contract price of these activities; and

•Identification of subcontractors and suppliers who will be performing these construction activities and materials.

The easiest way of preventing these liens as a homeowner is to write joint checks. When the contractor presents a bill for materials or labor, the owner should compare it to the schedule of payments in the contract. The owner should also ensure that the work was provided as described and then make the check out to both the contractor and the supplier (or the contractor and the subcontractor). Both parties will have to endorse the check, which will ensure that the subcontractors and suppliers get paid.

The law governing mechanics liens in Illinois can be complicated and confusing, and there are real risks involved for contractors and owners alike who do not follow the necessary steps above to avoid those treacherous traps.

Tim McLean specializes in commercial litigation and corporate counseling at Clingen Callow & McLean LLC, a full-service law firm of business advisers and counselors based in Wheaton. The information in this article is intended for general purposes only and does not constitute legal advice. Readers should not act upon the information in this article without individual professional counseling. Contact him at 630/871-2612 or at mclean@ccmlawyer.com.