Illinois Mechanics Lien Basics

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The Statute: The Illinois Mechanics’ Lien Act, 770 ILCS 60/1 et seq.

Purpose: to provide a remedy to a contractor who provides valuable improvements to real estate by allowing him to lien the property (place a hold on the property to secure payment).

Once the lien is in place (or perfected), the lien clouds the property’s title and the contractor can sue to foreclose his lien and force a sale of the property.

Without this lien remedy, the contractor is at the mercy of the general contractor or owner.  If either runs out of money, the contractor gets nothing for his labor, materials, time and effort.

Cast of characters:

Owner = developer, person or entity that owns real estate

General Contractor (or Prime Contractor or Original Contractor or “GC”) = party that contracts with Owner

Subcontractor = party that contracts with General Contractor

Sub-subcontractor = party that contracts with Subcontractor

Lender (Mortgagee, Incumbrancer) = mortgage lender that funds construction activities on real estate

Notice and Timing Rules

General Contractor: “4 months/2 year rule”.  770 ILCS 60/7.  The GC must record lien within 4 months of last date of performance and must file suit to foreclose his mechanics’ lien within 2 years of last performance on the project.

Subcontractor: “90 days/4 months/2 years”.  770 ILCS 60/24.  The Subcontractor must serve notice to Owner within 90 days of last performance, must record its lien within 4 months of last performance, and must file suit to foreclose within 2 years of last performance.

Subcontractor on owner-occupied, single-family residential property: “60 days/90 days/4 months/2 years”.  770 ILCS 60/5.  A subcontractor on this type of property must serve notice on owner within 60 days of his commencement of work that he is a subcontractor on the property.  He then must serve notice on the owner of his intent to lien within 90 days of his last performance, record his lien in the Recorder’s offices within 4 months of last performance and file suit within 2 years of his last performance.

Venue (where to file): the lien is filed in the Recorder of Deeds for county where property is located (e.g. Chicago property = Cook County Recorder of Deeds; Waukegan property = Lake County Recorder of Deeds; Wheaton = DuPage County Recorder of Deeds).  770 ILCS 60/9.

Elements of a Mechanics Lien Claim (the Complaint):

A general contractor mechanic’s lien claimant must establish: (1) a valid contract; (2) with the owner of the property or someone authorized to contract on behalf of the owner; (3) for the furnishing of services or materials; and (4) performance of the contract or a valid excuse for non-performance.

A contractor can enforce a mechanic’s lien by proving that he substantially performed the contract in a workmanlike manner.

To perfect a mechanics lien, the subcontractor must serve the 90-day notice and record his lien within 4 months while  a general contractor must record his lien within 4 months of last performance.

A properly perfected lien will “relate back” and attach as of the date of the owner-general contractor prime contract.  This is important when the issue of priorities arises (e.g. when two liens are recorded against the same property, what takes priority?)

The general contractor does not have to serve a 90-day notice because he has contracted directly with the owner and so the owner presumably knows the general contractor’s identity.

Filing Suit to Foreclose the Lien

While recording the lien will certainly blemish the owner’s title and make it difficult to sell or refinance the property, to really go for the jugular, the contractor must file suit to foreclose his lien.  This sets in motion an eventual judicial sale of the property and provide sales proceeds from which to compensate the lien claimant.

To that end, a contractor suing to foreclose his lien must allege (a) a brief statement of the contract, (b) the date of the contract, (c) the date of last performance under the contract, (d) the amount unpaid, (e) a description of the premises, and (f) any other necessary facts.  770 ILCS 60/11(a).

The  contractor should name as defendants the owner, general, all other lien claimants and mortgage lenders on the property.  My experience is the vast majority of mechanics’ lien cases settle before trial.  However, the end-game is a foreclosure sale of the property with the court divvying up the sale proceeds among the various competing claimants (typically, the mortgage lender, general contractor, and at least one subcontractor).’

If You Didn’t Record the Lien On Time

If you fail to record a lien (such as in a situation where a client doesn’t tell you about its claim until more than 4 months have passed – it happens), you can still sue for breach of contract and alternatively for quantum meruit/unjust enrichment.  The limitations period for written contracts is 10 years (measured from the date of breach); for oral contracts, 4 years and for quantum meruit – 5 years.  Obviously, with these remedies, you run the risk of an insolvent or judgment-proof defendant.

Collecting Your Illinois Judgment Part II: the Citation Order

Per my earlier post – neophyte collection lawyers often wonder what they should put in the order once the citation examination concludes.  Section 2-1402(c) sets forth several possible orders that can enter.

The Citation Respondent Appeared and Answered

Broadly, if the debtor appears and you conduct the examination, you can either dismiss or discharge the citation, continue it, or order a turnover of funds or property.  I enter a dismissal if the debtor fully complied and has no assets, I continue the proceedings if the debtor does not produce the requested documents, and I enter a turnover order if the debtor or a third-party answers that there are funds or property that can be applied towards the judgment.

For a third-party citation, typically issued to the debtor’s bank, I enter a dismissal order which provides that the bank turnover the non-exempt funds within 7 days.  If the bank fails to pay, I move for a Rule to Show Cause and entry of conditional judgment.  This gets the bank’s attention.

Another possible order on the citation return date is an installment payment order which I file with the court.  An example of this is found at: http://12.218.239.52/Forms/pdf_files/CCG0105.pdf.

Citation Fails to Appear

Surprisingly, debtors often fail to appear on the Citation return date.  When this happens, you ask for a “Rule” – shorthand nomenclature for Rule to Show Cause.  That’s also a pre-printed form found in the courtroom.  You fill out the required information and have it served personally on the debtor.  If the debtor fails to respond to the served Rule, you request a body attachment or “writ of attachment”.  That order will contain a $1,000 bond amount (usually), and should be placed with the Sheriff, who – at some point – will contact the debtor and physically bring him/her to the courtroom.

Collection counsel should familiarize themselves with House Bill 5434 – eff. July, 2012 (http://www.ilga.gov/legislation/BillStatus.asp?DocNum=5434&GAID=11&DocTypeID=HB&LegId=65695&SessionID=84)

which added requirements specifically concerning body attachments.  Basically, no body attachment will issue until creditor obtains personal or abode service of a Rule to Show Cause on the debtor, there is a maximum $1,000 bond amount, and the body attachment expires after 1 year.

The Computer Fraud and Abuse Act: ‘Damage’ and ‘Loss’ Elements (7th Circuit/ND IL)

Security7_610x426The Computer Fraud And Abuse Act, 18 U.S.C. s. 1030 et seq. (CFAA) – the Federal statute that criminalizes various forms of computer hacking – is an odd mix of precise terms of art and vague, amorphous phrasing.

One CFAA area rife with unsettled litigation is the Act’s “damage” and “loss” requirements.  The CFAA specifically defines both terms but the unsettled question concerns whether underlying physical damage to the computer or computer data is necessary to prove “loss.”  That is, does a CFAA plaintiff have to prove computer damage FIRST before it can try to satisfy the $5,000 loss threshold?

Under the CFAA, “Damage” means any impairment to the integrity or availability of data, a program, a system, or information (e.g. physical damage to a computer or its data).  18 U.S.C. § 1030(e)(8).  “Loss” equals the cost of responding to an offense, conducting a damage assessment, and restoring the data, program, system, or information to its condition prior to the offense as well as any revenue lost, cost incurred, or other consequential damages incurred because of interruption of service.  18 U.S.C. § 1030(11)

Q: What Constitutes Damage Under the CFAA? 

A: A synthesis of Seventh Circuit cases provides the following “damage” examples:

(i) destruction, corruption, or deletion of electronic files;

(ii) physical destruction of a hard drive;

(iii) smashing hard drive with a hammer; installing shredding software;

(iv) installing secure-erasure software; and

(v) diminishing usability of computer system.

Q: What Does Not Constitute Damage?

A:  (i) copying, e-mailing or printing electronic files;

(ii) stealing employer computer data and sending it to competitor;

(iii) e-mailing confidential data to private email address to use in competing business; and

(iv) disclosure of trade secrets.

Q: What Constitutes ‘Loss’ Under the CFAA

A: The Northern District (Ill.) holds that CFAA “loss” encompasses

(1) the cost of investigating or repairing a computer or computer system following a violation that caused damage to a computer or computer system, or

(2) revenue lost, cost incurred, or other consequential damages incurred because of the interruption of service.

TriTeq, 2012 WL 394229, * 7; Navistar, Inc. v. New Baltimore Garage, Inc., 2012 WL 4338816, *8 (N.D.Ill. 2012); Farmers Ins. Exchange v. Auto Club Group, 823 F.Supp.2d 847 (N.D.Ill. 2011) 

Q: Is Physical Computer Damage Required In Order to Establish CFAA ‘Loss’?

A: This is the question that is the most unsettled, both in the Seventh Circuit and nation-wide.  Some courts adopt an expansive view of loss and hold that damage isn’t required. Others give a restrictive reading to CFAA loss and hold that a CFAA plaintiff can still satisfy the statutory loss element even if there’s no underlying computer damage.

Some District Court cases in the Seventh Circuit that hold that underlying computer damage is required to show loss include: TriTeq Lock & Sec. LLC v. Innovative Secured Solutions,LLC, 2012 WL 394229 (N.D.Ill. 2012); Farmers Ins. Exchange v. Auto Club Group, 823 F.Supp.2d 847, 851-856 (N.D.Ill. 2011); 1st Rate Mortg. Corp. v. Vision Mortg. Servs. Corp., 2011 WL 666088 at *2 (E.D.Wis. Feb. 15, 2011).

Cases that represent a broader of view of loss – that physical damage or data destruction is not required to show loss – include Navistar, Inc. v. New Baltimore Garage, Inc., 2012 WL 4338816, *8 (N.D.Ill. 2012); SKF USA, Inc. v. Bjerkness, 636 F.Supp.2d 696, 721 (N.D.Ill. 2009).

The statutory text supports the expansive application of the latter cases: that physical damage is not a prerequisite to establishing CFAA loss; at least with respect to CFAA information (defendant accesses protected computer and obtains information) and fraud (defendant breaches computer in connection with furthering a fraud) claims.  18 U.S.C. § 1030(a)(2), (4).

Afterwords: The strongest case from a CFAA plaintiff’s perspective is where the defendant has caused physical damage including data destruction or deletion, coupled with quantifiable monetary loss to remedy the damage.

The weakest case will be where there the plaintiff is trying to recover money damages in the absence of physical harm to computer equipment or data.  In cases where a computer or its data hasn’t been harmed or compromised, a CFAA plaintiff’s claim will likely hinge on the severity of the defendant’s conduct; such as whether he violated a non-disclosure or non-compete and whether he accessed trade secrets or confidential information belonging to the plaintiff.