Is Foreclosure the Way that Liens are Enforced?

04/27/2009 - Category:Real Property - Liens - State: ALL #16153

Full Question:

I am a home owner having my house renovated. One of the subcontractors served me with a 90-day subcontractors notice stating that the general contractor had not paid him. I didn't know he was a subcontractor, and the general's defense is that no work was rendered. The general and the sub have a separate contract. Is there anyway for the general and the sub to litigate their dispute without involving me? Right now, the sub's 90-day notice seems to indicate that he will file a lien shortly, and the general is demanding that the sub initiate foreclosure on my home so that the case can be heard and dismissed since, according to the general, the sub didn't provide work and the sub didn't notify me that he was, in fact, a sub as the Act requires. As a first time homeowner, thoughts of liens and foreclosures concern me, especially when it appears to be a private dispute between the general and sub. Can foreclosure be initiated? Can I lose my house because of this private disptue between the general and subcontractor? Or, is foreclosure the way that liens are enforced?

Answer:

Even if a claimant has properly prepared its lien, the claimant will notbe able to enforce its lien against the interests of third parties (suchas subsequent purchasers or lenders) until the lien has been perfected.To properly perfect a mechanics lien, both contractors andsubcontractors must record their liens within four months of their lastdate of work.

In addition, subcontractors must comply with certain noticerequirements. Subcontractors working on an existing, owner-occupied,single-family residence, for example, must serve a notice on theoccupant of the residence within 60 days from their first day of work.This notice must state:

The name and address of the subcontractor or materialman;
The date on which the claimant started to work or delivermaterials;
The type of work done and to be done or the type of materialsdelivered; and
The name of the contractor requesting the work.

Subcontractors on all private construction projects (includingowner-occupied, single-family residential projects) must also givenotice to the owner or his agent, architect, or superintendent havingcharge of the property, and the lending agency, if known, of theirintent to file a lien. Subcontractors must give this notice within 90days following their last date of work, and the notice should beconsistent with the form provided in 770 ILCS 60/24(b) of the Act. TheAct requires this notice to be sent via registered or certified mail,restricted delivery, return receipt requested.

If judgment is entered against the owner on a subcontractor's lienclaim, the owner will be liable for no more than the amount that was dueor to become due from the owner on the underlying owner/contractoragreement at the time the owner received notice of the subcontractor'sclaim. If that amount is less than the total amount of perfected lienclaims, then each subcontractor lien claimant will recover its claim ona pro rata basis. Notwithstanding the foregoing, an owner that pays ingood faith reliance on the amounts set forth in the Contractor's SwornStatement will not be liable for lien claims in excess of the amountshown on the sworn statement, regardless of whether that amount iscorrect.

The claim for lien may be filed "at any time after the contract ismade." Contractors and subcontractors generally wait until they haveperformed at least some portion of the work before recording a mechanicslien.

As noted above, contractors and subcontractors must record their lienwithin four months after their last date of work in order for the liento be perfected. All mechanics liens must be recorded in the office ofthe recorder of the county in which the subject property is located.

To enforce a mechanics lien, a lien claimant must file suit within twoyears after its last date of work on the project. Note, however, thatthe lien will not be enforceable against third parties unless the lienis properly perfected as described above. A claimant does so by means ofa foreclosure action in which the lien claimant asks the court to orderthe property that is subject to the mechanics lien to be sold and toapply the proceeds of the sale to the claimant's unpaid claim.Subcontractors who choose to file a foreclosure action must sue theowner and the contractor jointly for the amount due.

Note that the two-year time period for filing suit may be accelerated bya demand made pursuant to section 34 of the Act. If a lien claimantreceives a section 34 Demand to File Suit, the lien claimant mustinitiate suit to enforce its lien within 30 days or forfeit its lien.

The following are Illinois statutes:

770 ILCS 60/24 (from Ch. 82, par. 24) Sec. 24. Written notice bysub-contractor; service; when notice not necessary; form of notice.

(a)Sub-contractors, or parties furnishing labor, materials, fixtures,apparatus, machinery, or services, may at any time after making his orher contract with the contractor, and shall within 90 days after thecompletion thereof, or, if extra or additional work or material isdelivered thereafter, within 90 days after the date of completion ofsuch extra or additional work or final delivery of such extra oradditional material, cause a written notice of his or her claim and theamount due or to become due thereunder, to be sent by registered orcertified mail, with return receipt requested, and delivery limited toaddressee only, to or personally served on the owner of record or hisagent or architect, or the superintendent having charge of the buildingor improvement and to the lending agency, if known; and such noticeshall not be necessary when the sworn statement of the contractor orsubcontractor provided for herein shall serve to give the owner noticeof the amount due and to whom due, but where such statement is incorrectas to the amount, the subcontractor or material man named shall beprotected to the extent of the amount named therein as due or to becomedue to him or her. For purposes of this Section, notice by registered orcertified mail is considered served at the time of its mailing. The formof such notice may be as follows:
To (name of owner): You are herebynotified that I have been employed by (the name of contractor) to (statehere what was the contract or what was done, or to be done, or what theclaim is for) under his or her contract with you, on your property at(here give substantial description of the property) and that there wasdue to me, or is to become due (as the case may be) therefor, the sum of$_____ Dated at _____ this _____ day of __________, ____ (Signature)
(b)The serving of notice pursuant to subsection (a) of this Section shallnot constitute an admission by the lien claimant that its status is thatof subcontractor if it is later determined that the party with whom thelien claimant contracted was the owner or an agent of the owner.

770 ILCS 60/21 (from Ch. 82, par. 21) Sec. 21. Sub-contractor defined;lien of sub-contractor; notice; size of type; service of notice; amountof lien; default by contractor.

(a) Subject to the provisions of Section5, every mechanic, worker or other person who shall furnish any labor,services, material, fixtures, apparatus or machinery, forms or form workfor the contractor, or shall furnish any material to be employed in theprocess of construction as a means for assisting in the erection of thebuilding or improvement in what is commonly termed form or form workwhere concrete, cement or like material is used in whole or in part,shall be known under this Act as a sub-contractor, and shall have a lienfor the value thereof, with interest on such amount from the date thesame is due, from the same time, on the same property as provided forthe contractor, and, also, as against the creditors and assignees, andpersonal and legal representatives of the contractor, on the material,fixtures, apparatus or machinery furnished, and on the moneys or otherconsiderations due or to become due from the owner under the originalcontract.
(b) If the legal effect of any contract between the owner andcontractor is that no lien or claim may be filed or maintained by anyone and the waiver is not prohibited by this Act, or that suchcontractor's lien shall be subordinated to the interests of any otherparty, such provision shall be binding; but the only admissible evidencethereof as against a subcontractor or material supplier, shall be proofof actual notice thereof to him or her before his or her contract isentered into. Such subordination provision shall not be binding on thesubcontractor unless set forth in its entirety in writing in thecontract between the contractor and subcontractor or material supplier.
(c) It shall be the duty of each subcontractor who has furnished, or isfurnishing, labor, services, material, fixtures, apparatus or machinery,forms or form work for an existing owner-occupied single familyresidence, in order to preserve his lien, to notify the occupant eitherpersonally or by certified mail, return receipt requested, addressed tothe occupant or his agent of the residence within 60 days from his firstfurnishing labor, services, material, fixtures, apparatus or machinery,forms or form work, that he is supplying labor, services, material,fixtures, apparatus or machinery, forms or form work provided, however,that any notice given after 60 days by the subcontractor shall preservehis lien, but only to the extent that the owner has not been prejudicedby payments made prior to receipt of the notice. The notification shallinclude a warning to the owner that before any payment is made to thecontractor, the owner should receive a waiver of lien executed by eachsubcontractor who has furnished labor, services, material, fixtures,apparatus or machinery, forms or form work. The notice shall contain thename and address of the subcontractor or material man, the date hestarted to work or to deliver materials, the type of work done and to bedone or the type of materials delivered and to be delivered, and thename of the contractor requesting the work. The notice shall alsocontain the following warning: "NOTICE TO OWNER The subcontractorproviding this notice has performed work for or delivered material toyour home improvement contractor. These services or materials are beingused in the improvements to your residence and entitle the subcontractorto file a lien against your residence if the services or materials arenot paid for by your home improvement contractor. A lien waiver will beprovided to your contractor when the subcontractor is paid, and you areurged to request this waiver from your contractor when paying for yourhome improvements." Such warning shall be in at least 10 point bold facetype. For purposes of this Section, notice by certified mail isconsidered served at the time of its mailing.
(d) In no case, except ashereinafter provided, shall the owner be compelled to pay a greater sumfor or on account of the completion of such house, building or otherimprovement than the price or sum stipulated in said original contractor agreement, unless payment be made to the contractor or to his order,in violation of the rights and interests of the persons intended to bebenefited by this Act: Provided, if it shall appear to the court thatthe owner and contractor fraudulently, and for the purpose of defraudingsub-contractors fixed an unreasonably low price in their originalcontract for the erection or repairing of such house, building or otherimprovement, then the court shall ascertain how much of a differenceexists between a fair price for labor, services, material, fixtures,apparatus or machinery, forms or form work used in said house, buildingor other improvement, and the sum named in said original contract, andsaid difference shall be considered a part of the contract and besubject to a lien. But where the contractor's statement, made asprovided in Section 5, shows the amount to be paid to thesub-contractor, or party furnishing material, or the sub-contractor'sstatement, made pursuant to Section 22, shows the amount to become duefor material; or notice is given to the owner, as provided in Sections24 and 25, and thereafter such sub-contract shall be performed, ormaterial to the value of the amount named in such statements or notice,shall be prepared for use and delivery, or delivered without writtenprotest on the part of the owner previous to such performance ordelivery, or preparation for delivery, then, and in any of such cases,such sub-contractor or party furnishing or preparing material,regardless of the price named in the original contract, shall have alien therefor to the extent of the amount named in such statements ornotice. In case of default or abandonment by the contractor, thesub-contractor or party furnishing material, shall have and may enforcehis lien to the same extent and in the same manner that the contractormay under conditions that arise as provided for in Section 4 of thisAct, and shall have and may exercise the same rights as are thereinprovided for the contractor.
(e) Any provision in a contract, agreement,or understanding, when payment from a contractor to a subcontractor orsupplier is conditioned upon receipt of the payment from any other partyincluding a private or public owner, shall not be a defense by the partyresponsible for payment to a claim brought under Section 21, 22, 23, or28 of this Act against the party. For the purpose of this Section,"contractor" also includes subcontractor or supplier. The provisions ofPublic Act 87-1180 shall be construed as declarative of existing law andnot as a new enactment.

770 ILCS 60/34 Sec. 34.

Upon written demand of the owner, lienor, or any personinterested in the real estate, or their agent or attorney, served on theperson claiming the lien, or his agent or attorney, requiring suit to becommenced to enforce the lien or answer to be filed in a pending suit,suitshall be commenced or answer filed within 30 days thereafter, or thelienshall be forfeited. Such service may be by registered or certified mail,return receipt requested, or by personal service.



Please see the information at the following links:

http://definitions.uslegal.com/s/subcontractor/
http://definitions.uslegal.com/m/mechanics-lien/

04/27/2009 - Category: Liens - State: ALL #16153

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