Are Completion Dates Required on Mechanics Liens?

Illinois' Mechanics Lien Act dates back at least to 1903. It's amazing that an issue as fundamental as what exactly needs to appear on the face of the lien remains unresolved. There is currently a split between the 1st and 2nd districts regarding whether the contract completion date needs to appear on the face of the lien.

The 1st District requires completion dates in mechanics liens. In Merchants Environmental Industries, Inc. v. SLT Realty Ltd. Partnership, 314 Ill.App.3d 848 (1st Dist. 2000) the court noted that a mechanics lien is not enforceable unless it is recorded within 4 months of completion of the work. The court went on to say that "while section 7 itself does not expressly require inclusion of the completion date in the lien claim, nevertheless that requirement must be inferred."

The court asserted that the primary purpose for requiring the lien claim to be filed within a specified time is so third persons dealing with the property may have notice of the existence, nature and character of the lien as well as the times when the material was furnished and labor performed, and thus be enabled to learn from the claim itself whether it was such as can be enforced. Without a completion date, the court noted, a person examining the lien claim would not know whether the four-month filing requirement had been met.

The 2nd District, on the other hand, does not require completion dates. The court recently issued its opinion in National City Mortgage v. Bergman, 02-09-0934, October 20, 2010. In that case, the court held that the Mechanics Lien Act must be strictly construed. In strictly construing the statute the court found nothing in section 7 requiring a claimant to state the date of the completion of the contract. The plain language of section 7 instructs the lien claimant only to: (1) file the claim within four months after the completion of the work; (2) verify the lien by affidavit of the claimant or an agent or employee; (3) include a brief statement of the contract; (4) set forth the balance due; and (5) provide a sufficiently correct description of the lot or lots.

The safe practice is to include the completion date. I have to assume that everyone who reads this blog already does that. I should note that the contractors in the Merchants and Bergman cases both filed their liens without the aid of an attorney.  So, if any of my clients are still reading at this point, let this be a lesson to you.  Call me the next time you need a lien prepared. 

Subcontractor's Sixty Day Notice

Section 5(b)(ii) of the Illinois Mechanics Lien Act requires that subcontractors supplying services or materials to a single family, owner-occupied residence must send notice to the occupants within 60 days from the date of first supplying services or materials. That section also sets forth the contents of the notice.

The purpose of the notice is to protect the homeowner from having to pay twice for a subcontractor's work. Upon receipt of the subcontractor's notice, the owner knows that he should demand a sworn statement before paying the general contractor. The sworn statement should list all of the subs. The owner can then withhold the monies due to the subs and pay them directly, or if he receives lien waivers signed by the subs, he can pay the general contractor the whole amount.

However, is a subcontractor's failure to serve the 60 day notice fatal to its mechanics lien claim as a matter of law?

No, it is not, according to the court in Crawford Supply Company v. Schwartz, 1-09-0900 (September 25, 2009). In that case, the plaintiff was a plumbing subcontractor who filed suit to foreclose its mechanics lien. Plaintiff had properly served its 90 day notice of claim and had also recorded its lien within 4 months of completing the work. However, the plaintiff did not serve the 60 day homeowners' notice, so the defendants moved to dismiss. (Click here for a quick refresher on the timelines).

The court found it "apparent" that "the legislature did not intend for section 5(b)(ii) to be construed so technically that the Act's remedial purpose of protecting those who furnish labor or materials be undermined." This conclusion is supported, the court said, by section 5(b)(iii), which provides that notice provided after 60 days shall preserve a subcontractor's lien, but "but only to the extent that the owner has not been prejudiced by payments made before receipt of the notice."

So, the Act addresses late notices, but it does not address a complete failure to provide the notice. This is where the court stepped in to say that only upon a showing of prejudice by the homeowner will a failure to provide the notice be fatal to a subcontactor's mechanics lien claim.

New notice required under Mechanics Lien Act.

The Mechanics Lien Act was amended to require a new notice to homeowners in owner-occupied single-family residences. Contractors now must send homeowners written notice within 10 days after recording a lien against their property.

The amendment does not apply to subcontractors. The amendment is effective for contracts entered into after January 1, 2010.

Complete text of the amended section (770 ILCS 60/7).

Indiana Mechanics Lien Update

Like in Illinois, people performing work on buildings in Indiana can place a mechanics lien on the property on which the work was performed. Pursuant to that State's mechanics lien act, lienable work includes the erection, alteration, repair, or removal of a building, among other things.

The Indiana Court of Appeals recently considered what qualifies as a "repair" under the statute. The case Midwest Biohazard Services, LLC v. Rodgers, 893 N.E.2d 1074 (Ind. Ct. App. 2008), concerned the clean-up and removal of a decomposing body.

Apparently Mr. Rodgers, Sr. died in his home. His body was not discovered for several days. During that time, his body decomposed causing fluids to leak into the carpet, subfloor, and down into the basement. Mr. Rodgers, Jr. contracted with Midwest Biohazard Services ("Midwest") for the clean-up and removal of his father's decomposed body. After the work was complete, Mr. Rodgers, Jr. informed Midwest that he would not be paying them.

Midwest quickly recorded a mechanics lien and filed suit to foreclose. The trial court dismissed, finding that the services did not constitute a repair under the statute. On appeal, Midwest argued that it performed repairs, but Mr. Rodgers, Jr. argued that they performed only cleaning services.

The Appellate Court looked to the purpose of the act and to the definition of the work repair. Because that word is not defined in the act, it is given its plain and ordinary meaning, which includes restoring something to its original value. The Court noted that a home free of biohazard contaminants was worth much more than a home that was full of biohazard contaminants, so the house had been repaired by Midwest and they were entitled to their lien.

Mechanics Lien Cheat Sheet

GENERAL CONTRACTOR:

Lien: A verified claim for mechanics lien must be recorded within 4 months of last providing work.

Foreclosure: An action to foreclose a mechanics lien must be filed (and a lis pendens recorded) within two years of last providing work, or within 30 days after a demand to commence the suit pursuant to 770 ILCS 60/34.

SUBCONTRACTOR/MATERIAL SUPPLIER:

Homeowners Notice: Subcontractors supplying services or materials to a single family, owner-occupied residence must notify the occupants that it is supplying services or materials within 60 days from the date of first supplying services or materials.

Notice of Claim: Subcontractors must serve a written notice of the claim on the owner and the lender within 90 days of last performing work or delivering materials.

Lien: A verified claim for mechanics lien must be recorded 4 months of last performing work or delivering materials.

Foreclosure: An action to foreclose a mechanics lien must be filed (and a lis pendens recorded) within two years of last providing work, or within 30 days after a demand to commence the suit pursuant to 770 ILCS 60/34.

Property owner has to pay twice for subcontractor's work.

Under the mechanics lien act, it is the property owner's duty, before making any payments, to require the general contractor to provide a sworn written statement listing all subcontractors and amounts due or to become due to each of them. 770 ILCS 60/5(a). If a subcontractor's name is omitted from the sworn statement, or if the subcontractor claims he is owed a different amount than is listed in the statement, the subcontractor must give the owner written notice of its claim no later than 90 days after its completion of the contract. 770 ILCS 60/24(a).

When an owner is notified of a subcontractor's claim, either by way of the sworn statement or through the subcontractor's claim for lien, the owner must retain from any money due to the contractor an amount sufficient to pay the subcontractor. 770 ILCS 60/27. If, after receiving notice that a subcontractor is owed, an owner pays a contractor and does not retain sufficient funds to pay a subcontractor, such payment shall be considered illegal and made in violation of the subcontractor's rights, and the owner will have to pay twice.

That is what happened to the University of St. Francis in Joliet in the case Weather-Tite, Inc. v. University of St. Francis, et al. In that case, the general contractor on a residence hall remodeling project submitted its final bill showing it was owed approximately $450,000, $130,000 of which was owed to a subcontractor. St. Francis paid the general contractor the whole $450,000. The general contractor's bank seized the funds to partially satisfy a debt the contractor owed to the bank. The subcontractor never got paid.

Because St. Francis had notice of the subcontractor's claim by way of the general contractor's sworn statement, and because St. Francis did not set aside the subcontractor's payment, the court found that St. Francis' payment of the subcontractor's $130,000 to the general contractor violated the mechanic lien act. The court also found that the subcontractor still had a valid and enforceable mechanics lien. The subcontractor was then granted summary judgment in its attempt to foreclose upon that lien. So, St. Francis will end up paying the $130,000 subcontractor bill twice.

The case does not address the proper remedy, if any, that St. Francis has against the general contractor. Any ideas?