CONSTRUCTION LAW TIPS
No More Payment with Waivers in Arrears
Up until now, many lenders, owners, and title companies would take a sworn statement from a contractor and pay the contractor the amounts due subcontractors trusting that the contractor will pay the subcontractors. The contractor was expected to furnish the subcontractors’ waivers with its next payment application. However, if something happens that prevents the contractor from paying the subcontractors, the owner or lender may have to pay twice. In Weather-Tite v. University of St. Francis Stonitsch Construction, the contractor deposited the payment he received in his bank account. The bank took the money and applied it to a debt the contractor owed the bank. The subcontractors sued to foreclose their liens and won. The owner had to pay twice. Partly because of this case, at least one title company is insisting that payments from a draw go directly to the subcontractors. That is the safest practice for owners and lenders.
If You Owe Money, Pay It or You May Be Liable for Attorneys Fees
Section 17 of the Illinois Mechanics Lien Act provides that the owner may have to pay attorneys fees if it fails to pay a lien “without just cause or right.” Courts have generally been reluctant to impose attorneys fees under this section, but the recent case of O’ Connor Construction Company v. Belmont Harbor Home Development may change that. The Appellate Court sent the case back to the trial court to impose attorneys fees because the Appellate Court found there was no just cause not to pay the part of the money that the owner admitted was undisputed.
The Pitfalls of Enforcing a Mechanics Lien By Yourself
Enforcing mechanics liens against private property is a tricky business. About a third of the lien claims seen by SmithAmundsen are invalid. The best approach is to have the lien notices and claims prepared and served by a knowledgeable attorney.
Forty years ago serving and filing liens was a lot simpler and many construction companies could do it without worrying about many legal technicalities. Today the situation is a lot different. If you are a subcontractor, you most serve your ninety day notice of claim for lien not on the beneficial owner of the property, but on the “owner of record.” This means you need a title search. A subcontractor also must serve the notice on all mortgagees who have recorded mortgages. If you don’t serve a mortgagee, the lien will not be good against the mortgagee. This means you need to determine what mortgages are on file, who currently owns the mortgages, and where these parties can be served.
If you are either a contractor or a subcontractor, your lien must be recorded to be good against mortgage lenders, purchasers and other lien claimants.
You must have the right legal description. This means that if there has been a plat of subdivision recorded, you must use the legal description as per the last recorded plat or condominium declaration.
You must also properly identify the parties to your contract. A wrong name can invalidate the lien. The recorded claim for lien must state the last day of lienable work, and what is lienable work is not always easy to figure out.
Deciding when to file the lien is not always easy. The recorded lien must be recorded within four months of your last day of lienable work. However, once the lien is recorded, your claim for any work performed after the last day of work specified in the lien probably will not be good against mortgage lenders, purchasers, and other lien claims. Therefore, you need to consider carefully whether and when to file your lien.
ABOUT THE AUTHOR
Howard Turner is Of Counsel with SmithAmundsen where he concentrates his practice in mechanics liens, construction, and related transactional and litigation matters. He recently co-authored three chapters in the IICLE Mechanics Liens in Illinois 2010 Edition. This publication is widely considered to be the authority on mechanics liens issues. Featuring analysis, commentary, and practice-focused advice from Illinois’ leading mechanics lien attorneys, this handbook is a thorough guide to a highly technical subject. From an analysis of the nature, origin, and classes of mechanics liens and through detailed discussion of types of liens, specific trial practice problems, this book serves as an exhaustive reference on mechanics liens law in Illinois. For more information, please contact Howard.