Effective January 1, 2016, Illinois has enacted a significant change in how mechanic’s lien claims may be litigated. Currently, mechanic’s lien litigation can tie up title to real estate for months, or even years, while the various rights of multiple lien claimants, lenders, and owners of real estate are resolved by the courts. Beginning in 2016, real estate owners, as well as anyone who has an interest in the real estate (presumably lenders), and anyone potentially liable for the payment of the lien claim, can substitute a surety bond in place of the real estate.
Substituting the surety bond for the real estate not only frees up title to the real estate, but potentially simplifies the mechanic’s lien litigation as issues of lien priority, especially between lenders and mechanic’s lien claimants, would appear to be eliminated.
The bond supplied by the owner must equal 175% of the amount of the lien claim. And it must meet specific minimum financial ratings. The petition to substitute the bond for the real estate may be made prior to any litigation being initiated by the lien claimant. The owner may file a petition to substitute the bond prior to a complaint to foreclose the mechanics lien is filed. Alternatively, the petition can be filed by the owner within five months after the date that any complaint to foreclose the mechanic’s lien claim has been filed.
The lien claimant does have an opportunity to object to the substitution of the bond by establishing that the bond does not meet the specific statutory criteria laid out in this new provision. But once the bond is substituted for the real estate, the owner and surety on the bond may only assert the defenses against the lien claim that could have been asserted by the owner of record at the time of the contract under which the lien claim was made. Therefore, issues of priority as between the mechanic’s lien claimant and the lender, which is often one of the most complicated issues in a mechanic’s lien claim, should be eliminated.
This new provision in the Mechanic’s Lien Act also expands the circumstances in which attorney’s fees can be awarded to the prevailing party. If the lien claimant is awarded at least 75% of its lien claim, it will be awarded its attorney’s fees, but its total award is capped at the amount of the bond. If the lien claimant is awarded a judgment equal to less than 25% of the amount of its lien claim, the owner can be awarded its attorney’s fees up to the amount of 50% of the original lien claim.
This new provision in the Mechanic’s Lien Act should allow real estate owners to litigate any issues with lien claimants while, at the same time, being able to free up title to the real estate. At the same time, lien claimants will have a ready source of cash to collect without having to litigate priority issues with the lender, and without having to worry about whether the value of the real estate will be sufficient to satisfy its lien claim.