Illinois Appellate Court Upholds Finding of Constructive Fraud by Mechanics Lien Claimant

By: Blake A. Strautins, Partner, and Pooja Dosi, Associate, Kluever & Platt, LLC

Kluever & Platt recently obtained a victory in the Illinois Appellate Court for a commercial client facing a mechanics lien claim brought under the Mechanics Lien Act. This ruling provides further protection for those facing mechanics liens and serves to discourage fraudulent lien claims—which unfortunately occur quite frequently.

The purpose of the Mechanics Lien Act, 770 ILCS 60/1 et seq., is to require the individual with an interest in the property to pay for any improvements made on the property. Under the Act, contractors and subcontractors are required to record their mechanics lien with the county recorder of deeds office within 4 months of the last day of work. A properly recorded mechanics lien can have a negative financial ripple effect against the person or entity against whom it is claimed because it creates a cloud on title—meaning it will appear in public records and can make it difficult to transfer the property or obtain financing. A mechanics lien also allows the contractor or subcontractor who holds the lien to foreclose on the property and have it sold to satisfy the lien. Thus, once a mechanics lien is recorded and a foreclosure complaint is filed, it effectively deems all other liens to be in default, including any mortgages on the property.

In MEP Construction, LLC v. Truco MP, LLC, et al., 2019 IL App (1st) 180539 (Feb. 8, 2019), the First District Appellate Court held that a mechanics lien recorded and pursued by the lien claimant was grossly overstated and amounted to constructive fraud, resulting in a release of the lien. The underlying facts are summarized below.

The lien claimant and the business entered into a verbal contract to build out a restaurant. Under the contract, the lien claimant agreed to provide construction management and other related services to the business. The lien claimant alleged that it fully performed its contractual obligations under the agreement, but that the business only made partial payment. The lien claimant recorded a mechanics lien claim for its work with the Cook County Recorder of Deeds in the amount of $251,870.45. However, only $123,134.45 of that amount was actually due to the lien claimant; the remaining amounts were due to various contractors with whom the lien claimant had no contract.

The lien claimant filed a mechanics lien complaint against several defendants, including the business. The business filed a motion for partial summary judgment alleging that the mechanics lien was constructively fraudulent because the lien claimant only performed half of the work that it claimed in the lien, and the remaining amount was performed by various other contractors. The court found that the lien claimant’s mechanics lien specifically said that the lien claimant, and no other entity, was owed the money. Moreover, the evidence in the case showed (and the lien claimant actually admitted) that it only performed half of the total lien amount claimed. It was clear that the remaining amount was owed to other contractors who had no contractual relationship with the lien claimant. As a result, the court found that the mechanics lien was more than 100% overstated and constituted constructive fraud, resulting in a release of the lien.

Defending a mechanics lien claim can be daunting. Mechanics liens are a powerful tool available to guarantee payment to those who provide labor and materials to make improvements on a property, and can have devastating impacts for those facing such a claim. But this significant appellate ruling provides an extra layer of protection for those facing mechanics lien claims by discouraging fraudulent lien claims and minimizing risk.