Steps To Protect Mechanic's Lien Rights
Whether you are contractor or supplier, it is important to know and protect your Mechanics Lien rights. Mechanics Lien rights vary from state to state. Knowing what your lien rights are and exercising those rights can help insure that you get paid. Here is an outline of your Illinois Mechanics Lien and Bond rights and your rights on Federal projects.
Obtain the following information from each customer on each project:
- Name of job, address or exact location of the project, identity of general contractor and Owner.
- Bonding information, if any.
- Notify the owner in writing that you are a subcontractor or supplier on the project.
- Apply payments to correct invoices.
- If a waiver of lien is requested for a partial payment, use a Partial Waiver Form. Do not use a Waiver of Lien to Date form, unless you back date waiver to the last invoice that is waived. All invoices prior to and including that date will be waived.
- Attempt to tender waiver directly to the title company, lender, or Owner in trust to be used only upon payment to your company. Send copies (marked "copy") to the customer and the general contractor, so that they know the waiver has been tendered. This will protect you from the customer who uses your waiver, receives payment, and does not remit your portion thereof. By giving your waiver to the customer, you risk your customer defrauding you and terminating your lien rights by use of your waiver.
- Typically, a Final Waiver of Lien waives all rights to labor performed and material, even for work and material to be provided in the future. If you are requested to provide additional labor or material after giving a final waiver, you must have a separate contract or purchase order that clearly distinguishes the additional work. If you a supplier your company should have and use its own form for a Final Waiver of Lien that does not waive future deliveries.
Lien Rights on Private Property
SCOPE: Lien covers value of all material, equipment, rental equipment, and labor delivered to job for purposes of incorporation into the job or use on the job in the case of rental.
- Consumer Remodeling. Within 60 days of your first delivery and before payment is made to the general contractor by the Owner, written notice is required to be served upon the Owner and the mortgage company by personal service or Certified Mail. If the owner pays in full before you serve this notice, then your lien will fail. The 90 day Notice and Claim for Lien must also be served on the Owner. You and your contract must also comply with the Illinois Home Repair and Remodeling Act.
- Business Remodeling or New Construction. Within 90 days of last significant work or material to complete your contract, a Notice of Claim for Lien must be served upon the Owner and the mortgage company by personal service or Certified Mail. Corrections of your own work do not extend the last date of work. Give your attorneys at least ten business days prior notice, so that they do their title search and prepare the Notice within the 90 day period.
- Even if you serve your 90 Notice of Claim, your lien may fail if the owner pays the general contractor in full based on a false contractor's affidavit which fails to list your company. If the owner pays the general contractor any money after service of your 90 Day Notice, your lien is protected to the extent of that payment.
- Within four (4) months of your last work, a Claim for Lien should be filed with the Recorder of Deeds.
- If you record your lien after four months, your lien is only good against the owner's interest and subject to the mortgage company and any third party purchaser.
- Even if the above has not been done, your company may still have lien rights if your company was listed on a contractor's affidavit submitted to the Owner.
- If you were employed by or sold directly to the owner, you are treated as a general contractor or original contractor. The 90-day Notice is not required. In that case you still need to record your lien within four (4) months of your last work to prevail against the mortgage lender and third party purchasers and within two (2) years of your last work to prevail against the owner only.
- Within two years of your last work or material, excluding corrections of your own work, you must file suit to foreclose your lien.
Lien Rights on Public Jobs
State of Illinois, Municipalities and Political Subdivisions in State of Illinois 770 ILCS 60/23.
SCOPE: Lien covers value of all material, labor and rentals. This is a lien only on the funds yet to be disbursed to the general contractor.
- Serve Statutory Notice before payment is made to the General Contractor.
- Suit to Foreclose the Public Lien must be filed and a copy served on Public Body within 90 days of service of Notice.
Bond Claim on Public Jobs
State of Illinois, municipalities and political subdivisions. 30 ILCS 550/1 & 2.
SCOPE: Bond is required by Statute to cover material and labor. It does not cover rentals, unless the Bond has language indicating same.
Notice of Claim on Bond must be served within 180 days of last work or material delivered. Suit on the bond must be filed within one year of the last work or material delivered.
Federal Jobs including all Departments and Agencies. 40 USC Sections 270(a) and 270(b).
SCOPE: Bond covers material, labor and rental.
- If you have been employed by the general contractor, suit on the Bond must be filed within one year of the last day you provided material, labor or rental equipment.
- If you have been employed by a subcontractor of the general contractor, a Notice of Claim must be served on general contractor within 90 days and suit must be filed within one year of supplying the last material, labor, or rental equipment.
- If you have been employed by a sub-subcontractor, you have no rights under the Bond.
Common Defenses to Mechanics Lien Rights
- Failed to file suit after receipt of 30 day demand to file suit.
- Waiver of Lien to date covers unpaid work provided before said date.
- An intentionally inflated lien claim may render the lien void.
- Failed to comply with time limits for notices, recording and filing suit.
- Failed to comply with the statutory requirements for the Notice or the recorded Claim for Lien. This includes errors in the identification of the legal owners and mortgage companies, and errors in the identification of the contract and the last date of work.
- General Contractor paid pursuant to Contractor's Affidavit before the Notice of Claim is served. (This does not apply to Bond Claims.)
Prepared by Michael T. Nigro
All copyrights reserved: Michael T. Nigro
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