Mechanics Lien Constructive Fraud

Securing your rights to file a mechanics lien is an important step to ensuring payment on any given construction project. But since lien rights are statutory – meaning they are provided by law – you are generally required to send notices, meet deadlines, and properly fill out your claims. Any errors, including overstating lien amounts due, can quickly invalidate an otherwise valid claim. In order for an Illinois mechanics lien to be dismissed, the claim must not only be overstated – it also requires proof of fraud or constructive fraud. A Court of Appeals case out of Illinois clarified what constitutes “constructive fraud.”

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Fraudulent lien claims

Being as precise as possible when filing a mechanics lien is crucial to ensuring your rights to payment. When you claim more than you’re owed in a mechanics lien, you risk being charged with filing a fraudulent or exaggerated lien.

The Illinois statute covering fraudulent liens is found under 770 ILCS 60/7(a):

No such lien shall be defeated to the proper amount thereof because of an error or overcharging on the part of any person claiming a lien therefor under this Act, unless it shall be shown that such error or overcharge is made with intent to defraud.

In Illinois, claiming an inflated amount is not enough by itself to invalidate the claim. Instead, Illinois prefers the lien to remain and be the subject of litigation, as opposed to dismissing it without any further evidence of fraud (or intent to defraud). If there is no intent to be found, the court may still dismiss the claim if there is evidence of “constructive fraud.”

So what type of evidence can lead to constructive fraud? That’s what the Illinois Appeals Court addressed in the following case.

Mechanics lien filed with overstated amount & wrong completion date

The case in question: Father & Sons Home Improvement II, Inc. v. Stuart

Project Snapshot

  • Owners: Tracee & Cedric Stuart (Stuarts)
  • Construction Lender: Bank of America (BOA)
  • Direct contractor: Father & Sons Home Improvement II, Inc. (Father & Sons)

Contractor filed inflated lien claim before the project was complete

The Stuarts hired Father & Sons to construct a deck, garage, and basement for their residential property. The agreement was for $43,500 and work began shortly thereafter. The project started in September and finished in June of the following year; for a total of nine months.

However, one month into the project, Father & Sons filed a mechanics lien against the property claiming the full contract price, plus an additional $2,700 in additional work performed “at the special instance and request” of the Stuarts.

Father & Sons eventually filed an action to foreclose against Stuarts and BOA.

Bank of America filed a motion to dismiss based on the fact that the lien wasn’t timely filed. They argued that it hadn’t been recorded within 4 months of completion, and was thereby unenforceable against third parties.

Additionally, the Stuarts and BOA argued that the lien was invalid because of the inflated amount claimed, and the fact that Father & Sons misrepresented the completion date.

Father & Sons countered, claiming that they had begun architectural work and permitting well before the lien was filed. They also argued that the “inflated amount” wasn’t excessive to the level of fraud. The circuit court decided in favor or Stuart and Bank of America.

Father & Sons had to pay their attorney fees, which combined for a total of around $40K. Father & Sons appealed.

Appeals Court: Lien claim constituted constructive fraud

The Illinois appellate court mainly focused on whether the lien claim constituted fraud. As stated above, Illinois courts rarely invalidate an exaggerated lien claim without some evidence of fraud. Father & Sons argued that, even if the amount claimed was overstated, the amount wasn’t so inflated as to reach the level of intent to defraud as required by the statute. To rise to the level of dismissal, there must be evidence that the claimant knowingly filed a false statement.

However, even without direct evidence of intent to defraud, a lien can still be considered fraudulent if there is “constructive fraud.” For the court to find constructive fraud, there must be additional evidence, or a “plus factor,” associated with the claim.

In the immediate case, not only was there an exaggerated amount, but it was coupled with a sworn affidavit stating that the work was completed on a certain date. Even if Father & Sons started architectural work ahead of time, and filed their claim in a timely fashion, they stated in their affidavit that all work was complete. Which it wasn’t.

Therefore, the Court declared that the lien constituted constructive fraud, and they dismissed the claim.

Mechanics lien mistakes can be expensive

This is an important lesson for mechanics lien claimants. You need to be sure that all the information provided is as accurate as possible. The determining factor, in this case, wasn’t necessarily the overstated amount. Instead, the court found that additional misrepresentations made made the claim constructively fraudulent.

If there is a mistake on your claim, be sure to amend or refile a new mechanics lien claim to avoid any exposure or liability. Here, at the end of the day, the contractor not only lost their payment for the job. They were also forced to pay $40K worth of attorneys’ fees to its client.