Lien

A lien is an encumbrance on property as security for a debt. A mortgage is one common type of lien. Judgment liens and mechanics liens are other examples; they are just created and operate in different ways. 

Lienable work

Your work must be considered lienable work under Sec. 1 of the Act. For example, drilling a water well, pouring a sidewalk, repairing an existing structure, and providing concrete forms are all lienable, but merely plowing snow or performing general maintenance or lawn mowing is not.

Contractors

If you have a contract directly with the property owner, his agent or architect, or someone else who was knowingly permitted by the owner to enter into such contracts for improvement or construction (typically a tenant), then you are referred to under the Act as a “contractor” and must follow the procedures set forth in Section 7 (and other sections) of the Act. Other informal names for a contractor are “original contractor” or “prime contractor.” An original contractor might or might not be a general contractor. Sometimes a contractor who is typically a sub-contractor (e.g., a plumbing contractor or electrical contractor) is actually an original contractor because his contract is directly with the owner (or his agent or architect, etc.). It depends upon who the contracting parties are, not what you or your company call yourselves. This distinction is important because original contractors have different duties and procedures to follow than subcontractors. Hereafter I will refer to original/prime contractors as just “contractors” in keeping with the Act.

Subcontractors

If, however, your contract is with an original contractor (often but not always the general contractor) or another contractor, and not directly with the owner of the property, then you are a subcontractor under Section 21 of the Act, and you must follow the procedures for subcontractors set forth in Sections 21 and 24 of the Act, among others.

Material Suppliers

Material suppliers must also follow the lien procedures for subcontractors (unless they are original contractors themselves).

Perfecting lien claims

All lien claimants must take steps to “perfect” their liens. Once perfected they may file a lawsuit to foreclose on the property, which means that after a judgment is entered the property can be sold at a public sale and the proceeds used to pay their lien claims. This is how mortgage liens are foreclosed as well.

A word about sworn statements

A sworn statement under Section 5 of the Act, sometimes called a Section 5 statement, is a statement sworn to under oath by a contractor which lists the name and address of each party providing labor or material to the property/project under that contractor’s contracts with various subcontractors and material suppliers. It also lists the amounts due or to become due to each such subcontractor and material supplier under their respective contracts. Sworn statements serve to protect the owner by informing him of the identity of all parties who have contracted to supply labor or material to the project so the owner can make sure each party gets paid the proper amount and that title to the property is not encumbered by mechanic’s lien claims, whether legitimate or fraudulent. Owners are entitled to rely upon the truthfulness of each sworn statement. Section 5 imposes a duty upon the owner to obtain a sworn statement from each contractor, and a duty upon each contractor (except pure material suppliers) to provide a sworn statement to the owner, before any payment is made by the owner to the contractor. 

Perfecting lien claims of contractors

The information required in a contractor’s lien claim (not a subcontractor’s lien claim) is described in Section 7 of the Act. 

Contractors perfect their liens by recording them in the appropriate Recorder of Deeds office within four months after the last date on which lienable services or materials were furnished to the property by the contractor (generally called the “completion date”, which is usually but not always the date on which all of the contract work was completed). The contractor must then file a lien foreclosure lawsuit within two years after that same completion date (not the date of recording) in order to foreclose on the lien. Failure to file the lawsuit timely renders the claim void and this worthless. 

Or, the contractor may simply file a lien foreclosure lawsuit within the initial four-month period. If the contractor properly follows either of these two procedures the lien claim will also be binding on any subsequent owner or a lender.

An exception:

However, in the event the contractor fails to record a lien claim within the four-month period but does file a lawsuit within the two-year limitations period, the lien may still be enforced if the same owner still owns the property, but it may not be enforced against a subsequent owner or a lender.

Special Rule for Existing Owner-Occupied Single Family Residences:

A contractor, before receiving his first payment from the owner of an existing owner-occupied single family residence, must also “provide” the homeowner with a “statement” in the form included in Section 5 of the Act, which serves to advise the homeowner that the contractor must submit a “sworn statement” to the homeowner before each payment request.

Perfecting lien claims of subcontractors (and material suppliers)

The information required in a subcontractor’s or material supplier’s lien claim is described in Section 24 of the Act.

Because subcontractors do not have a direct contractual relationship with the property owner, they must take an additional step to notify the property owner of their contract. They perfect their liens by first serving notice of their lien claim within 90 days after the completion date of their work, and then recording the lien in the appropriate Recorder of Deeds office within four months after that same completion date. (Note that this is not an additional four-month period.) The 90-day notice must be served upon the owner of record and all lenders of record via personal delivery or certified or registered mail. The subcontractor must then file a lien foreclosure lawsuit within two years after the completion date (again, not the date of recording). Failure to file the lawsuit timely renders the claim void.

If a proper and timely 90-day notice is given, and the lien is properly and timely recorded within the four-month period, then the subcontractor’s lien is perfected against the owner, lender, and all other parties. All the subcontractor has to do is file a lien foreclosure lawsuit within the two-year limitations period.

Some exceptions:

A subcontractor’s failure to properly and timely serve the 90-day notice is fatal to his lien and renders it void, except the lien will be valid and protected in the amount that is shown to be due the subcontractor on the contractor’s sworn statement to the owner (but only if there is in fact a sworn statement and if in fact an amount due to the subcontractor is shown on it).

Also, as is the case with a contractor’s lien, even if no notices were given or lien claim recorded by the subcontractor, the lien claim can still be enforced if the subcontractor files a lien foreclosure lawsuit within the two-year limitations period, but only against the owner of the property at the time of the original contract. The lien would not be enforceable against a subsequent owner or a lender.

Special Rule for Existing Owner-Occupied Single Family Residences:

A subcontractor, in addition to the 90-day notice described above, must also send a separate notice to the owner of an existing owner-occupied single family residence in order to fully preserve his lien right. The form of this notice is set forth in Sections 5 and 21 of the Act. It must be served personally or via certified mail, return receipt requested, within 60 days after the subcontractor first furnished labor or materials to the property. Failure to do so within 60 days is not fatal to the lien; however, any later notice will only preserve the amount of the lien to the extent the homeowner has not been prejudiced by payments made before receipt of the notice.

Question? Ask Dana.