Securing mechanics lien rights isn’t just as simple as filing a document — it’s a process. Each state has varying degrees of rules and requirements that must be met. Illinois in particular handles the amounts a subcontractor can file a lien for very differently than most other states. The amount they can claim can be affected depending on whether the owner was properly notified of any unpaid amounts. This notice can come from the general contractor’s sworn statement, or a subcontractor’s 90-day notice of claim. But as you’ll see from this article, subcontractors should never rely on a contractor’s sworn statement in Illinois.
What is an Illinois Contractor’s Sworn Statement?
Under Illinois’ mechanics lien laws, a contractor’s sworn statement is a document provided by the general (prime) contractor to the property owner prior to payment. This requirement can be found under 770 ILCS 60/5:
“(a) It shall be the duty of the contractor to give the owner, and the duty of the owner to require of the contractor, before the owner or his agent… shall pay or cause to be paid to the contractor or to his order any moneys or other consideration due or to become due to the contractor, or make or cause to be made to the contractor any advancement of any moneys or any other consideration, a statement in writing, under oath or verified by affidavit, of the names and addresses of all parties furnishing labor, services, material, fixtures, apparatus or machinery, forms or form work and of the amounts due or to become due to each.”
A sworn statement is meant to protect the property owner from “double payment” resulting from a sub or supplier’s mechanics lien claim. As you can see, the onus is on both the owner to require one and the general contractor to provide one. But in reality, this is ultimately up to the owner to request one in order to protect themselves. If one isn’t requested, then the GC doesn’t have to provide one.
How does a Sworn Statement affect subcontractors in Illinois?
When it comes down to mechanics liens for subcontractors and suppliers in Illinois, there are essentially two different types: a full-price lien and an unpaid balance lien. Generally, Illinois is considered an unpaid balance state — as long as the owner takes the proper precautions to ensure they don’t have to pay twice for the same work. Proper precautions meaning that they withheld the amounts listed in the sworn statement (i.e. the unpaid balance). But what if the sworn statement isn’t accurate? Or one wasn’t even provided?
IL subcontractor 90-day notice
Cue the subcontractor 90-day notice, aka Section 24 notice, aka notice of intent to lien, aka notice of claim of subcontractor. Whatever you want to call it, this notice is crucial for subcontractors and suppliers looking to secure the full protection of Illinois mechanics lien laws. The specific statute governing the notice is found under 770 ILCS 60/24:
“(a) Sub-contractors, or parties furnishing labor, materials, fixtures, apparatus, machinery, or services, may at any time after making his or her contract with the contractor, and shall within 90 days after the completion thereof… such notice shall not be necessary when the sworn statement of the contractor or subcontractor provided for herein shall serve to give the owner notice of the amount due and to whom due, but where such statement is incorrect as to the amount, the subcontractor or material man named shall be protected to the extent of the amount named therein as due or to become due to him or her.”
To put this in simpler terms, an Illinois subcontractor lien is only valid if the owner has notice of the claim before it’s filed — notwithstanding the Notice to Owner required by subs on owner-occupied, single-family, residential projects. This notice can come in one of two forms: 1. a general contractor’s sworn statement, or 2. the subcontractor’s 90-day notice.
Owner’s duties regarding sworn statements and 90-day notices
So what does the owner have to do when they receive one of these notices? This is covered under 770 ILCS 60/27:
“When the owner or his agent is notified as provided in this Act, he shall retain from any money due or to become due the contractor, an amount sufficient to pay all demands that are or will become due such sub-contractor, tradesman, materialman, mechanic, or worker of whose claim he is notified, and shall pay over the same to the parties entitled thereto.”
In other words, once an owner receives notice that a subcontractor or supplier is unpaid, they are required to withhold “sufficient funds” to cover any such claims — or risk double payment. Any full payments made after receiving such notice are considered illegal and in violation of laborer and subcontractor rights.
Any payment made by the owner to the contractor after such notice, without retaining sufficient money to pay such claims, shall be considered illegal and made in violation of the rights of laborers and subcontractors and the rights of such laborers and subcontractors shall not be affected thereby.
What can happen when a 90-day notice isn’t sent
Now let’s take a look at three cases where a subcontractor failed to send a 90-day notice and see how these scenarios play out in real life situations.
In this first scenario, the contractor provided a sworn statement that properly listed the subcontractor’s unpaid amount. However, the owner failed to withhold the amount listed and paid the contractor in full. The subcontractor ultimately went unpaid and filed a lien. The courts enforced the lien claim for the full unpaid amount listed in the sworn statement, since they paid the contractor in full.
Scenario 2 involved a contractor’s sworn statement that did not list the subcontractor as having an unpaid balance. No 90-day notice was provided and the owner paid the contractor in full. When the subcontractor went unpaid and attempted to enforce a lien claim, the claim was denied. The owner was allowed to rely on the sworn statement since no 90-day notice was provided otherwise before payment was made.
In this last scenario, the contractor provided a sworn statement, but listed the subcontractor’s unpaid balance as less than what was actually owed. The owner properly withheld that amount and paid the contractor the difference. When the sub went unpaid and filed a lien, their lien was limited to the amount listed on the sworn statement.
Bottom Line: Don’t rely on a GC’s sworn statement!
To sum things up a bit, here’s a bird’s eye view of this process.
If the GC provides a sworn statement that properly lists the amount of money unpaid to a subcontractor, no 90-day notice is required. But if the amount listed is incorrect, the sub is only protected to the extent listed, unless a 90-day notice is provided. Even worse, if the sub isn’t listed at all, or states that there is no outstanding balance, then the sub will lose all lien rights unless a 90-day notice is provided before payment is made.
So why would a subcontractor rely on the GC to provide an accurate account of money due to them? The answer is: They shouldn’t! Illinois subcontractors should always send a 90-day notice to ensure they are fully protected by Illinois’ mechanics lien rights.