Illinois Law Allows Bonding of Mechanics Liens | Practical Law

Illinois Law Allows Bonding of Mechanics Liens | Practical Law

A recently enacted Illinois law will allow parties to a mechanics lien dispute to "bond off" the lien. Bonding off a mechanics lien is a common tool in several other states, but had not been previously available in Illinois.

Illinois Law Allows Bonding of Mechanics Liens

Practical Law Legal Update w-000-6167 (Approx. 4 pages)

Illinois Law Allows Bonding of Mechanics Liens

by Practical Law Real Estate
Published on 02 Oct 2015 • Illinois
A recently enacted Illinois law will allow parties to a mechanics lien dispute to "bond off" the lien. Bonding off a mechanics lien is a common tool in several other states, but had not been previously available in Illinois.
On July 29, 2015, Illinois added Section 38.1 to the Mechanics Lien Act, which authorizes parties to a mechanics lien dispute to post a bond to release the property from the lien, commonly referred to as "bonding off" the lien (770 ILCS 60/38.1). Effective January 1, 2016, Section 38.1 will enable an applicant to file a petition to substitute a bond for the property subject to the lien claim.
To be considered an eligible surety bond, the bond amount must be equal to 175% of the lien claim and be filed by an eligible applicant, which includes any:
  • Owner.
  • Lien claimant.
  • Other person that has an interest in the property.
Eligible applicants may file a petition at the earliest of:
  • Service of a subcontractor's 90-day notice under Section 24 of the statute.
  • Recording of the general contractor's claim for lien under Section 7 of the statute.
  • The filing of a suit by either the contractor or subcontractor to enforce the mechanics lien.
(770 ILCS 60/38.1(a)(3).)
The statute sets out the detailed requirements for:
  • The contents of the petition.
  • Service and filing requirements.
  • Surety eligibility requirements.
Bonding off a mechanics lien is already a common practice in many states, and allows parties to clear a cloud on title and bypass a drawn out litigation process. However, the Illinois law does carry some consequences that owners and other interested parties should be aware of, including that:
  • Mandatory prevailing party attorney's fees are imposed, determined using a set formula, in actions to recover on the bond.
  • Any judgment in favor of the lien claimant is against the principal and surety of the bond only, and not any other party.