File Fraudulent Mechanics Lien

Mechanics liens provide strong protection against nonpayment in the construction industry by providing parties with an interest in the actual property being improved by their work. A necessary consequence of that strong protection, though, is that mechanics liens are powerful, and recording a mechanics lien clouds the title of the subject property. Because of this, unscrupulous parties have used the mechanics lien instrument fraudulently, either in attempts to collect for payments actually owed but for which mechanics liens do not apply, or for personal or other completely unsupported reasons. Filing a lien fraudulently is never a good idea, and can lead to severe consequences – as recently found out by a lien claimant in Illinois.

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The Recent Case: Fraudulent Mechanics Liens Aren’t a Good Idea

A man was fined $500 and sentenced to probation for one year for filing a fraudulent mechanics lien. In a recent case in Illinois, a man was fined $500 and sentenced to probation for one year for filing a fraudulent mechanics lien. It was shown to the satisfaction of the jury that the lien claimant knew that he was attempting to file a false lien, and that doing so was illegal. What makes this case especially interesting, though, is that the lien was never filed. Since the lien was never actually filed, the claimant was charged with “attempting to unlawfully cloud title”. The county recorder recognized the lien as potentially fraudulent, and did not file the document. In fact, after the verdict was announced, the States Attorney noted that the “quick action and attention to detail” of the county recorder’s office was crucial to the prosecution.

Duties and Abilities of Illinois Recorders Unique

In most states, and in most circumstances, recorders are not supposed (or allowed) to make judgments as to the validity of a document to be recorded. When documents are presented to the recorder for filing, the recorder acts as a “rubber-stamp” such that the documents are recorded and indexed as required by statute. If there is some concern about the validity of the recorded document, that is a question to be decided by a court – after the recording. Generally, the thought is that it is better to have the documents recorded and later determined invalid than it is to let a valid document go unrecorded. This can be especially crucial for mechanics lien claimants, as strict and specific timing deadlines apply to the filing of mechanics liens.

At first, this is how it appears to work in Illinois, as well. 55 ILCS Sec. 3-5010 sets forth the duties of recorders, and notes that:

Every recorder shall, as soon as practicable after the receipt of any instrument in writing in his office, entitled to be recorded, record the same. . .

This mandate that the recorder must timely record any recordable written instrument presented is modified, however, by the statutory provision immediately following the one quoted above. Through 55 ILCS Sec. 3-5010.5 (currently scheduled to be repealed on June 1, 2018) recorders are given certain abilities in the attempt to cut down the “rapidly growing problem throughout [Illinois]” of “property fraud, including fraudulent filings intended to cloud . . . title to property by recording false . . . documents . . .”.

55 ILCS Sec. 3-5010.5 provides recorders with the ability to establish and use a “fraud referral and review process” through which a recorder may refer a document to an administrative judge for review if the recorder has a reasonable belief that the filing may be fraudulent or intended to unlawfully cloud title.

Despite the many factors to be considered, and the fact that the instruments are to be reviewed by legal counsel and an administrative judge to determine whether or not they are fraudulent, the application of the section is potentially troubling. In the case described above, it was noted that the document was never recorded. In that case the county recorded noticed the potentially fraudulent document and did not file it. It appears that the recorder’s office then notified the prosecutor of the potentially fraudulent filing. In fact, the States Attorney praised the recorder’s office for its “vital role” in “maintaining the integrity of . . . legal documents” and “the rights of property owners”.

Note, however, that 55 ILCS Sec. 3-5010.5(d) states that:

If a recorder determines, after review by legal staff and counsel, that a deed or instrument that is recorded . . . may be fraudulent . . . or intended to unlawfully cloud or transfer the title of any real property, he or she shall refer the deed or instrument to an administrative law judge for review. . . [emphasis added]

And, it goes on to state that the “recorder may, at his or her discretion, notify law enforcement officials regarding a filing determined to be fraudulent.” [emphasis added]

These portions of the fraud referral and review process statute each clearly contemplate the filing of the document prior to the review for fraud. This makes sense, and follows the general belief that documents should be recorded in order to protect against valid documents being refused for filing. This is good news for mechanics lien claimants who are operating against strict timing deadlines.

What could be bad news for lien claimants is if county recorders may institute review and referral proceedings prior to the documents being recorded. While “reasonable belief” is a legal term, it definitely provides some wiggle room. What mechanics lien claimants do not need is county recorders failing to file a (valid) lien, and causing the lien claimant to miss a deadline, because of some misplaced “reasonable” belief.

While fraudulent mechanics liens should never be filed, valid liens shouldn’t be rejected for filing, either. Lien claimants in Illinois may want to consider filing their lines with more lead-time than they otherwise would, just to be safe if they need to re-file after a rejection.

Attempt to File Fraudulent Mechanics Lien Results in Penalties in Illinois
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Attempt to File Fraudulent Mechanics Lien Results in Penalties in Illinois
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