In 2016, Illinois enforced House Bill 2635, which updated its Mechanics Lien Act with a provision that allows property owners and other higher-tier parties to “bond off” a valid mechanics lien.
“Bonding off” a mechanics lien refers to the practice of having a mechanics lien claim removed from a property’s records as long as it is replaced with a valid surety bond. This means that construction parties who hold a lien claim over a property will have to recover payment not through the foreclosure sale of the property but through a bond claim.
Understandably, not all construction professionals were keen about this idea. A mechanics lien is one of the most powerful tools that can get you paid, and granting property owners the capacity to remove a mechanics lien from their property’s records does not seem beneficial to them.
However, bonding off a mechanics lien is not as bad as it sounds either. This guide seeks to answer some of your basic questions about what it means to have an Illinois mechanics lien “bonded over,” and how it affects contractors, subcontractors, and material suppliers working in Illinois.
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What bonding off a mechanics lien in Illinois means
Bonding off a mechanics lien is best explained by illustrating a scenario.
Say, you’re a subcontractor working on an Illinois residential construction project and you do not get fully paid even after the project has been completed. To secure payment, you file a mechanics lien against the property and it gets recorded in the county clerk’s office.
Typically, this mechanics lien will stay under the property’s public records until payment has been produced and you have duly released or canceled the lien. You may also file a foreclosure lawsuit and recover payment through the sale of that property if the property owner fails to settle their debt before the lien expires.
By filing a valid mechanics lien, the real estate property, therefore, becomes your security asset from which you could recover payment.
However, Illinois’s updated Mechanics’ Lien Act has allowed property owners and other qualified parties to remove a mechanics lien from a property’s records and instead replace it with a surety bond. This means that instead of having the real estate property as the potential source of payment to settle debts associated with a property, the payment pool will now be sourced from the surety bond.
In other words, when a mechanics lien is successfully bonded over, you as the lien claimant will have to make a bond claim to recover your money.
Parties allowed to bond off a mechanics lien
Illinois allows property owners, general contractors and other parties having interest in the property to file a petition that could have a mechanics lien bonded over. All of these parties may file a petition to replace a mechanics lien with a surety bond as soon as the following has occurred:
- A general contractor has recorded a mechanics lien against the property
- A subcontractor has served a 90-day notice on the property owner stating that they have not yet received full payment for their work
- A foreclosure lawsuit has been initiated against the property
This petition must be filed in the county clerk office in the state where the property in question is located. You as the mechanics lien claimant must also receive a notice informing you that the petition has been made.
What to do after a petition to bond over a mechanics lien claim has been filed
There are two ways to go about a situation where a petition to bond over a mechanics lien has been filed: either you contest the petition, or you accept it and pursue payment via a bond claim.
Filing an objection to the petition
Contesting a petition must be done within 30 days after the petitioner has served the notice informing you that a petition to bond off the lien has been recorded.
When you object to a petition, your goal is to contest its eligibility. You must have sufficient grounds to prove that that a property owner or the petitioner must not be allowed to have your lien dissolved in lieu of a surety bond.
Once you have registered your objection within the required time frame, the petitioner will be required to set a hearing during which the court will decide if their petition is valid or not. If you do not object to the petition within the required time frame, your objections are automatically waived.
Filing a bond claim
When no objections have been registered and a petition to bond over a lien has been granted by the courts, your mechanics lien is effectively dissolved. Ideally, the property owners or general contractors will still settle their debt even without a mechanics lien in the picture. However, if you still do not receive full payment, you will have to make a claim to the approved surety bond.
Filing a bond claim means serving a notice of claim on the property owner, the bonding company, and other higher-tier parties. Once you have served this bond claim notice, you will be in communication with the bonding company, who might give you forms to fill.
Be prepared to provide documentation such as receipts, shipping and delivery documents, etc. to prove that you have valid unpaid invoices. If everything works well, you should receive payment from the bonding company not long after you have made a claim.
Note that filing a bond claim may not be necessary if the property owners settle their debts before the bond expires. This implies that once a mechanics lien has been bonded over, your deadlines for filing the payment claims will change. Keep track of these changes and make sure that you make a claim before a bond expires.
Benefits of having a mechanics lien bonded over
When a mechanics lien gets bonded over, it does not necessarily mean that you will lose your chance in recovering payment altogether. Here are some of the reasons why bonding off a mechanics lien is not as bad as it seems:
1. You can still receive payment even when a mechanics lien has been successfully bonded off.
Be aware that property owners and interested parties prefer to get rid of a mechanics lien so the property itself is not implicated in the payment dispute. With a valid surety bond in the picture, you still have a pool of money from which you can recover payment.
When a mechanics lien claim gets bonded off, a construction project can still push through and debts can still be settled. Property owners and general contractors may still produce payment without your having to escalate the issue by making a bond claim.
2. Making a bond claim is sometimes easier than filing a foreclosure lawsuit.
If you get the impression that a property owner or a general contractor is not keen on paying up, making a bond claim instead of initiating a foreclosure lawsuit is arguably an easier process. The process for filing a bond claim is simpler and less stressful than launching a full-blown lawsuit.
At this point you should have all the documented proofs required to make a valid payment claim. Everything that you have prepared in recording a valid mechanics lien claim could be useful even when filing a bond claim, that’s why it’s crucial to follow the lien process.
3. Payment may come faster when a mechanics lien is bonded over.
General contractors who bond off a mechanics lien claim usually do so because of their contractual obligation to keep a property free of mechanics liens. This means that general contractors are often obligated to settle their debts to subcontractors and material suppliers as soon as possible.
When your lien has been bonded over, you will either receive payment sooner than later, or your path to payment is made shorter by making a bond claim instead of suing your general contractor or the property owner. Clearly, the road to getting paid does not end when your mechanics lien is dissolved in favor of a surety bond.