The New Year brought with it the enactment of 770 ILCS 60/38.1 of the Illinois Mechanics’ Lien Act, (the “Act”). This new addition to the Act allows the substitution of a bond in place of a mechanics’ lien. This article highlights some important features of this new law.
In order to “bond over” a mechanic’s lien, a proper applicant must file a verified petition with the clerk of the circuit clerk in the county where the property is located. The applicant is essentially any individual or entity that has an interest in the subject property, including the property owner, the lien claimant, an owners association, or anyone else liable for payment of the lien claim. This petition may be filed at any time after a lien claim is perfected and prior to the commencement of litigation. Alternatively, after a complaint or counterclaim is filed the applicant only has 5 months to file its petition. Section 38.1(c) clearly lays out the specific details that must be included in the verified petition.
Section 38.1 also sets forth specific requirements for an “eligible surety bond.” For example, the bond must be in an amount equal to 175% of the claim for lien. Furthermore, the surety company providing the bond must be “A rated” and meet other financial-strength requirements. The local circuit court is also authorized to provide a list of approved sureties by order or local rule.
The Effect of Substitution
Once a petition is filed, any interested party may file an objection within 30 days after receiving notice, or 33 days after the notice is mailed, whichever is earlier. Failure to do so will be considered a waiver. If the petition meets all statutory requirements, then the court must enter an order (1) substituting the surety bond for the property securing the lien claim and (2) substituting the lien claimant’s right to recover on the bond for certain claims under the Act. As a result, the principal and surety become parties to any lawsuit in the future, or if there is litigation pending, they substitute in while all other parties can be dismissed. It is important to note that Section 38.1 does not permit a bond to release or discharge the underlying lien.
One of the most notable features under this amendment is the prevailing party’s ability to recover attorney fees. If the lien claimant is successful and is awarded a judgment of at least 75% of the lien claim, then it may be entitled to attorney’s fees capped at 50% of the amount of the lien claim. Alternatively, the principal of the bond can be deemed the “prevailing party” if a judgment is awarded for 25% or less of the claim for lien, and would be eligible to collect attorney’s fees.
The advantages of Section 38.1 are immediately apparent. Lien claimants are afforded an easier path to actually recovering a favorable judgment with the added bonus of possibly collecting up to half of their attorney’s fees. Conversely, property owners now have a mechanism that could potentially avoid foreclosure of the lien. As Section 38.1 is utilized, it will be interesting to see whether this helps simplify mechanics’ litigation, and whether the added potential for attorney’s fees encourages “bonding over” a lien. But before weighing the pros and cons of substituting a bond, one must still ensure full compliance with the rest of the Illinois Mechanics’ Lien Act.