In June we discussed pending legislation to add to the Illinois Mechanics Lien Statute (the Act) a section on lien bonds related to private property. As reported, this new section allows for the removal of a mechanics lien on private property by substituting a bond as security for the lien. A vast majority of states already have statutes that govern the use of lien bonds and, as of January 1, 2016, Illinois will no longer be an outlier.  

The new Section 38.1 to the Act is intended to streamline mechanics lien disputes by minimizing the number of parties involved in the dispute, including eliminating lenders and the priority disputes that tend to delay and complicate these matters. Section 38.1 delineates the parameters of the company that can provide a bond, thus helping to protect the lien claimant from the possibility that the bonding company will not be able to satisfy its obligations. Section 38.1 also provides that the lien bond shall be posted for 175% of the value of the lien. To post a bond, however, the party seeking to do so must file a petition with the court showing that the proposed bond meets the requirements of the Act.  

An addition to Section 38.1 that is different from the rest of the Act is a mandatory attorneys’ fee provision. Bond proponents will want to consider this provision before deciding to proceed with a bond. Previously, under Section 17 of the Act, only a lien claimant or the owner could obtain attorneys’ fees, and only if the lien claimant or the owner could show that the other party acted “without just cause or right.” Now, under Section 38.1, the lien claimant will be awarded fees if it recovers at least 75% of its claim and the owner will recover its fees if the lien claimant recovers less than 25% of its claim. Moreover, the lien claimant’s fee award is secured by the bond. This means that the principal on the bond (often the contractor) essentially becomes responsible for the lien claim, interest and attorneys’ fees, even though in many instances it may lack privity with the lien claimant.