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We paid our contractor. He also collected insurance pmts.

After a flood in our church we asked a contractor to meet with the insurance adjuster and they reviewed the building together. We signed a $120,000.00 detailed contract complete with 30 pages of drawings defining the scope of the repairs. The contractor assured is that if anything was missed he would submit invoices for extras to the insurance company. We paid him 110,000.00 out of a depreciation check and the rest from savings the church had. Unfortunately we signed a contract that authorized direct payment to the contractor and a large final check went to him which included his extras BUT also our replacement costs. We only owed him 10,000.00 and we calculate he owes us at least 7000.00 to replace the money we took our of savings to pay him. When we brought this to his attention the insurance company asked him to explain and he responded with a convoluted invoice quoting Statement of loss numbers and other numbers with no clarification. We hadn't heard from him in 3 months so we requested AAA arbitration get involved so he is forced to explain how he was entitled to the full amount of the final insurance check. Now he has threatened a mechanics lien claiming we owe an additional $5000!

1 reply

Aug 5, 2019

I'm so sorry to hear about that. I can't imagine how frustrating this must be, on top of all of the stress caused by the flood. From the sound of it, the paperwork for this job was done pretty thoroughly - and that's great to hear when there's a dispute as to what's owed. First, let's look at the mechanics lien requirements so you can assess whether the threat to file a lien is credible. Then, we can look into some particulars with dispute resolution.

Illinois mechanics liens
It's important to note that mechanics liens are only available for amounts owed but unpaid for work performed. So, any amounts that are "owed" that don't directly tie to the work performed are generally not lienable. Note, also, that if a lien claimant intentionally exaggerates what they're owed when they file a mechanics lien claim, they may well be filing a fraudulent lien. When a fraudulent lien is filed in Illinois, a lien claimant will lose their lien rights and may even be liable for damages or attorney fees if the lien has to be challenged. So, warning a lien claimant that their claim would be unfounded and overstated - and letting them know any necessary legal action will be taken - could help prevent a lien filing from occurring in the first place.

Also, note that Illinois has a weird and abnormally long mechanics lien deadline. A lien claimant could file their lien for up to 2 years after project completion, and that lien would be enforceable, to some degree. So, it's generally a good idea to resolve lien disputes so that they don't drag on - especially considering a dispute can drag on longer while a lien could still potentially be filed.

Dispute resolution
Alternative dispute resolution, such as arbitration, can be a great tool for resolving disputes while avoiding litigation. However, note that an owner can't unilaterally force their contractor into arbitration, mediation, or some other resolution process. So, unless the original contract called for one of these resolution processes, it might be hard to convince a contractor to submit to alternative dispute resolution. Of course, many construction contracts where an insurer will be making payments will contain clauses requiring arbitration. And, if arbitration is called for in the contract, that can be a great way to sort through the dispute. More on alternative dispute resolution clauses, here: Essential Info About Alternative Dispute Resolution Clauses | Construction Contracts.

Note, though, if arbitration cannot be demanded, recovering payments from a contractor can be a struggle. One option may be small claims court. When an Illinois dispute concerns $10,000 or less, small claims court might be a good option for resolving the dispute without the need for full-blown litigation. Of course, litigating the issue may be an option too - and the mere threat of filing a lawsuit might be enough to have a contractor walk back their threats of lien and even return what's owed to the owner.

I hope this was helpful information! Feel free to return to the Expert Center if you have any additional questions!

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