Ensuring Effective Subcontractor Lien Notices

Most subcontractors know that Section 24 of the Illinois Mechanics Lien Act requires serving the notice of lien on all Owners and Lenders within 90 days of the last day of work (the “90-Day Notice”) by personal service or certified / registered mail, restricted delivery, return receipt requested. (Of course a mechanics lien may also be predicated on the amounts listed in a contractor’s sworn statement.)

However, subcontractors don’t always appreciate that waiting until the last minute to serve the 90-Day Notice creates the risk of (1) a defective mechanics lien and (2) increased costs of enforcing mechanics lien claims.

Failed Delivery

A subcontractor that waits until the 90th day to serve a 90-Day Notice won’t discover any problems with delivery until it’s too late.  The owner may have changed addresses without the subcontractor knowing, the return receipt could bear an improper signature, the owner may refuse to sign the return receipt, or the post office may simply return the notice as a failed delivery.  Any of these problems could invalidate a 90-Day Notice.

Although Illinois courts are flexible when it comes to minor defects in the 90-Day Notice, failed delivery is generally not an exception to Section 24.  Lack of service could result in a defective lien.  At a minimum, potential problems with delivery allow an owner or lender to dispute the subcontractor’s right to a mechanics lien.  I recently filed a successful motion to dismiss for an owner where the 90-Day Notice was sent, on day 87, to the former address of the owner.

The risk of failed delivery increases if the 90-Day Notice is sent to a single address for the owner.  Section 24 provides multiple options for service, including service on the owner’s architect, the owner’s agent, or the superintendent for the project site.  Examples of an owner’s agent may include the construction escrow, depending on the escrow agreement, or a construction manager.   Section 25 also allows the 90-Day Notice to be perfected by recording within 90 days of the last day of work if the owner cannot be found with due diligence.

Even if there are no problems serving the 90-Day Notice, delayed service could lead to a dispute over the subcontractor’s last day of work.  By waiting, a subcontractor provides the owner with another possible defense to a mechanics lien.

Lack of Effectiveness

Effective service of the 90-Day Notice ensures that the owner and the lender know about a mechanics lien before making final payments to the general contractor.    A subcontractor is in a much better position when seeking to enforce claims against unpaid funds, as opposed to pursuing double payment from the owner or fighting over proceeds with a lender.

If there is a change order dispute, an effective 90-Day Notice may also help to ensure that the subcontractor’s claim is not undermined by the general contractor during negotiations with the owner.

Mechanics liens are powerful tools for collection, but they are less cost-effective if the owner has insufficient funds to pay outstanding liens. Delaying enforcement of those rights often results in additional attorney fees and a lower overall settlement.

Small Steps Lead to Lower Risks

Subcontractors can help minimize the risk of non-payment with simple modifications to their current risk management and collection policies as follows:

1. Arrange for service of the 90-Day Notice whenever payment is 60 Days past due.
2. Speak with your attorney or risk manager to ensure service of the 90-Day Notice to multiple addresses for the owner, including the owner’s architect, any agents or construction managers, the construction escrow, or a job site superintendent.
3. Record the claim for mechanics lien before the 90-Day Notice expires.

At a time when many projects and contractors are struggling, subcontractors should make sure they take advantage of the 90-Day Notice to perfect mechanics lien rights and to raise issues with the owner before project funds are exhausted.