While the article was published back in May 2011, I just recently came across an article published by the Illinois State Bar Association titled “Death of the mechanic’s lien?” The article was inspired by an Illinois Supreme Court decision that we covered in a previous blog post, LaSalle Bank National Association v. Cypress Creek I, LP.
In large part, the Illinois Bar Association’s article and the Cypress Creek case deals with the issue of Lien Priority (Lien Priority Tag). We just this week posted an article defining lien priority and explaining its importance. The ISBA article author, Richard Jones Jr., rests his claim that the mechanics lien may be dead on the idea that an Illinois lien after Cypress Creek has less priority than a construction loan. Here is some of his fatalistic comments:
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The Illinois Supreme Court recently held that a construction lender is automatically vested with a status equivalent to perfected mechanic’s lien claimants for all disbursements on the loan…The effect of this decision is that mechanic’s lien claims will be diluted by construction loans, substantially reducing the value of mechanic’s lien claims, and emasculating the protection provided by the Mechanic’s Lien Act.
Wow…emasculating? I thought his title was just a way of grabbing attention, but is Mr. Jones really arguing that the post-Cypress Creek mechanic’s lien is dead and worthless to contractors and suppliers? Based on a line in his closing paragraph, it seems so: “After Cypress Creek, the mechanic’s lien no longer provides protection to contractors.”
Mr. Jones doesn’t say the lien “no longer provides the same protection to contractors.” He just flatly concludes that the lien fails to offer any protections whatsoever.
I think Mr. Jones has really gone overboard in his article. Lien Priority can be a big deal, but as I explained in “Lien Priority & When It Matters,” lien priority is one of those concepts that only rarely rears its ugly head. Usually, construction projects can pay off its lien claims without a full-on foreclosure on the property, and thus, the fight between lien claimant and construction lender never arises.
Plus, the Cypress Creek decision doesn’t really put Illinois at odds with mechanic lien jurisprudence elsewhere in the United States. State-to-state, you could be pretty successful at guessing who has priority – lien or lender – by flipping a coin. Each state has their own theories and preferences in this regard, and it doesn’t make mechanic lien claims in the lender-preferred states all that much weaker than liens in opposite-minded states.
The mechanics lien is alive and well in Illinois. The Cypress Creek decision is problematic for a very small percentage of lien claimants, but not catastrophic. While I personally would prefer to see it have gone the other way, I don’t think your everyday lien claimant will ever have a reason to care about it. And as suggested by DuaneMorris’ JDSupra article on the Illinois Supreme Court case, there’s a Senate bill floating around in Illinois to shake up lien priority law, and thus “the law of relative priorities of mechanic’s lien and construction mortgages in Illinois remains unsettled and may undergo further changes and interpretations in the near future.”