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The signing of Illinois legislation by Gov. Bruce Rauner this summer that alters its mechanic’s lien law at the behest of property owners is not going over well with contractors and suppliers who are bracing for dominos to fall and costly problems to arise. One Illinois-based credit veteran called it a win primarily for banks and attorneys. However, those who work to limit the element of surprise in lien filings could mitigate some of the potential issues.
Illinois HB 2635, which goes into effect on Jan. 1, amends the state’s existing Mechanic’s Lien Act essentially allowing supplier and subcontractor lien rights to be bonded over. It provides that an applicant may at any time file a petition to substitute a bond for a lien claim on a property, according to the Illinois General Assembly website. Additionally, if another action exists to enforce the claim, an applicant may apply to become party to that pending action and petition to substitute a bond for the property subject to the lien claim.
“It will be the law, so we have to deal with it,” Norman Cowie, CCE, director of credit for Paramont-EO, Inc. wrote in a column for NACM Connect. “It is important to know the components of the law, though some of the nuances will have to be worked out.” Some of the key points, as noted on the Illinois General Assembly website, are as follows:
• After a lien is bonded over, it is up to the claimant to argue if the bond is adequate or applicable. Claimants are notified via a certified letter;
• An eligible surety bond shall be 175% of the amount of the lien claim;
• A bond must be A-rated and last as long as the lien is scheduled to;
• Venue for ligation is required to be filed/heard in the county of the property in question.
Part of the reason why the legislation was drafted may stem from the fact that Illinois, unlike several other states, does not require material suppliers and subcontractors to send preliminary notices within a short period of time after first furnishing, according to Chris Ring, of NACM’s Secured Transaction Services. “The property owner is not aware up front of potential lien claimants and is often surprised when subs and suppliers file mechanic’s liens; so, they look for protection,” Ring noted. “What material suppliers could do to prevent this event from happening in the first place is send a ‘non-statutory’ notice to alert the property owner that they are providing materials or services with the intent of having the subcontractor pay them within reasonable terms once they receive their draw payments.” He added that already “unfair” Illinois lien law has been taken to another, negative level for suppliers and subcontractors with this latest development.
In short, the potential for costly disputes has been elevated. “This will end up being a law that will increase legal fees and cause parties to lose their liens without just cause,” Cowie noted.
– Brian Shappell, CBA, CICP, managing editor
http://www.nacm.org/enews.html#1

Norman E. Cowie, CCE
Director of Credit

www.paramont-eo.com
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