Filing a mechanics lien is typically enough to recover payment on a construction project. However, in some cases, an enforcement action may be necessary to get what you’ve earned. What many contractors fail to take into consideration is that an enforcement action is a full lawsuit, and preparation and timing are crucial.
In Illinois, an owner can force a lienholder’s hand by serving a demand to enforce, which requires a lawsuit within 30 days of receipt. A recent IL appeals court highlighted some of the challenges faced by contractors in such situations, as a lien claim was dismissed for failing to name all necessary parties to the action.
Learn more: What Is ‘Enforcing’ a Mechanics Lien?
Illinois’ demand to enforce a lien claim
Illinois lien claimants have a long time to enforce their claim: a full two years from the claimant’s last date of furnishing labor and/or materials to the project. However, claimants must be prepared to take action in case they are served with a Demand to Enforce. This is a mechanism used by property owners that can be found under 770 ILCS 60/34(a); which states:
“Upon written demand of the owner, lienor, or any person interested in the real estate, or their agent or attorney, served on the person claiming the lien, or his agent or attorney, requiring suit to be commenced to enforce the lien or answer to be filed in a pending suit, suit shall be commenced or answer filed within 30 days thereafter, or the lien shall be forfeited.”
Once such a demand is received, the claimant has just 30 days to file an enforcement action or forfeit their lien rights. That’s just 30 days to hire an attorney, ensure all interested parties are named as defendants, and file the complaint.
Lien dismissed for failing to include all necessary parties
The case in question is CB Construction & Design, LLC vs. Atlas Brookview, LLC
- Owner: Atlas Brookview, LLC (Atlas)
- Contractor: CB Construction & Design LLC (CB)
- Represented by: David Latham of Latham Law Offices, LLC
The contractor CB was hired by Atlas in 2018 to renovate the residential units in an apartment complex located in Glenview, IL. The contract was for a little under $10M with a scheduled completion date of June 2020. However, CB claimed that work was completed in May of 2019 and that Atlas still owed them roughly $1.5M under the contract. Subsequently, CB filed a mechanics lien for that amount and named the following parties:
- Steven Ivankovich (CEO of Atlas)
- Lee Ward (loan administrator)
- Ravi Malli (Director of Asset Management for Atlas Apt. Homes)
Owners serve a demand to file suit
In response, Atlas served a demand to enforce the claim on CB. 28 days after receiving the notice, CB filed a complaint for breach of contract and enforcement of a mechanics lien. The complaint named Atlas, Ivankovich, Malli, and “Other defendants yet to be determined” as defendants.
When the case went to trial, Atlas filed a motion to dismiss the claims for failure to name all necessary parties.
Here’s the problem.
Under 770 ILCS 60/11(b):
“Each claimant shall make as parties to its pleading (hereinafter called “necessary parties”) the owner of the premises, the contractor, all persons in the chain of contracts between the claimant and the owner, all persons who have asserted or may assert liens against the premises under this Act, and any other person against whose interest in the premises the claimant asserts a claim.”
The court noted that there were other “necessary parties” that hadn’t been named in the complaint, notably:
- TPG Real Estate Finance (TPG), which had provided a loan to Atlas and recorded a mortgage on September 21, 2017
- Wells Fargo Bank, NA (Wells Fargo), which had a security interest in leases and rents from the property and had recorded that interest on February 23, 2018
The motion was granted by the court stating that the lender and the bank were known interest-holders.
Appeals court dismisses the lien claim
The two main issues upon appeal were:
- Are TPG and Wells Fargo considered necessary parties?
- Was the failure to add them within 30 days of a demand to enforce resulted in forfeiture of lien?
For the first issue, the court turned to the definition of “necessary parties” — which includes “all persons who may have any valid claim to the whole or any part of the premises upon which a lien may be attempted to be enforced under the provisions thereof, or who are interested int he subject matter of the suit.”
Furthermore, although the use of “unknown necessary parties” is allowable, these parties were known necessary parties and should have been listed. Therefore, TPG and Wells Fargo were indeed necessary parties and should have been named in the case.
Regarding whether all necessary parties must be added within the 30-day demand to enforce timeframe. CB argued that the statute of limitations for a mechanics lien is two years from contract completion. They felt that they should still have time to add the remaining necessary parties.
The court disagreed, stating that the more specific 30-day deadline applied when the demand to file suit prevailed over the more general deadline to enforce a lien claim. Accordingly, the action was dismissed.
Illinois claimants must always be prepared to enforce their claims
This is an important reminder to lien claimants in Illinois. Just because the lien is valid for two years after completion of your work doesn’t necessarily mean that you shouldn’t be prepared to act sooner.
A demand to enforce is a powerful tactic used by property owners in IL to catch claimants off guard. Once a lien is filed, claimants should ensure that they are prepared to file suit if or when they receive such a demand. And identifying all necessary parties (or put differently, any and all parties that have a recorded interest in the property) to the case is an important, and often overlooked aspect.