Mortgage Liens (Deed of Trust Liens)
A mortgage lien, sometimes called a deed of trust lien, is a voluntary lien on real estate given to a lender by a borrower as security for a real estate loan.
It becomes a lien on real property when the lender records the documents in the county where the property is located. Lenders generally require a preferred lien, referred to as a first mortgage lien. This means that no other liens against the property (aside from real estate taxes) would take priority over the mortgage lien. Subsequent liens are referred to as junior liens.
Mechanics’ Liens
A mechanic’s lien is a specific, involuntary lien that gives security to persons or companies that perform labor or furnish material to improve real property.
A mechanic’s lien is available to contractors, subcontractors, architects, equipment lessors, surveyors, laborers, and other providers. This type of lien is filed when the owner has not fully paid for the work or when the general contractor has been compensated but has not paid the subcontractors or material suppliers.
To be entitled to a mechanic’s lien, the person who did the work must have had a contract (express or implied) with the owner or the owner’s authorized representative. Releases of lien or lien waivers should be sought by the owner for whom the work was performed or material supplied, once work is paid (partially or fully), with signatures from the general contractor and the subcontractors.
A “no-lien contract’ filed on the project precludes any liens. If improvements that were not ordered by the property owner have commenced, the property owner may execute a document called a notice of non-responsibility to attempt to relieve herself from possible mechanics’ liens. By posting this notice in some conspicuous place on the property and recording a verified copy of it in the public record, the owner gives notice that she is not responsible for the work done.
Contractors with unpaid bills who wish to enforce their lien rights against an owner must file their lien notices within four months after the work is completed.
Subcontractors have the right in Illinois to file for their unpaid claims as well, even when the general contractor has been paid in full.
Under the Illinois Mechanic’s Lien Act notice requirements, a contractor who makes improvements to an owner occupied, single-family residence must give the owner written notice within ten days after recording a lien against any property of the owner. If timely notice is not given and, as a result, the owner suffers damages before notice is given, the lien is extinguished to the extent of the damages. The mere recording of the lien claim is not considered damages. The amendment specifically applies to contractors and not to subcontractors.
Mechanics’ liens can take priority over a previously recorded lien if the work done has enhanced the value of the property. The lien attaches as of the date when the work was ordered or the contract was signed by the owner. The date of signing of the contract or start of work establishes the lien’s priority over other liens. From the point of view of the public or a prospective purchaser, an unpaid contractor has a “secret lien” until the notice is recorded.
Lien Waiver and Disclaimer
The names of all subcontractors must be listed by the general contractor in a sworn statement. This list is presented to the landowner who ordered the work. Lien waivers (or waivers of lien) should be collected by the landowner from each contractor and subcontractor to create a continuing record that all lien claimants have released their lien rights. Materials suppliers and property managers should also be approached for releases.
Expiration of lien right and commencement of suit
In Illinois, the contractor’s lien right will expire two years after completion of that contractor’s work, unless she files suit within that time to foreclose the lien. Suits to enforce mechanic’s liens must be filed within two years after the last labor and/or materials were supplied. Under Section 34 of the Illinois Mechanic’s Lien Act, a property owner can demand that the suit be commenced in 30 days. This suit can force the sale of the real estate through a court order to provide funds to pay the claimant’s lien.
Judgments
A judgment is an order issued by a court that settles and defines the rights and obligations of the parties to a lawsuit. When the judgment establishes the amount a debtor owes and provides for money to be awarded, it is referred to as a money judgment.
A judgment is a general, involuntary, equitable lien on both real and personal property owned by the debtor.
A judgment is not the same as a mortgage because no specific parcel of real estate was given as security at the time the debt was created. A lien usually covers only property located within the county in which the judgment is issued. As a result, a notice of the lien must be filed in any county to which a creditor wishes to extend the lien coverage.
A judgment becomes a general lien on all the defendant’s real and personal property in a county at the time the judgment is recorded in the county recorder’s office. For the lien to be effective in another county, a memorandum of judgment must be recorded in that county.
Judgment liens are effective in Illinois for seven years and may be renewed for another seven-year term.
To enforce an actual judgment, the creditor must obtain a writ of execution from the court. A writ of execution directs the sheriff to seize and sell as much of the debtor’s property as is necessary to pay both the debt and the expenses of the sale. A judgment does not become a lien against personal property (as opposed to real property) of a debtor until the creditor orders the sheriff to levy the property and the levy actually is made.
Lis pendens
There is often a considerable delay between the time a lawsuit is filed and the time final judgment is rendered. When any suit is filed that affects title to real estate, a special notice known as a lis pendens (Latin for “litigation pending”) is recorded. A lis pendens is not itself a lien but rather notice of a possible future lien. Recording a lis pendens notifies prospective purchasers and lenders that there is a potential claim against the property. It also establishes a priority for the later lien: the lien is backdated to the recording date of the lis pendens.
Attachments
Special rules apply to realty that is not mortgaged or similarly encumbered. To prevent a debtor from conveying title to such previously unsecured real estate while a court suit is being decided, a creditor may seek a writ of attachment. By this writ, the court retains custody of the property until the suit concludes. First, the creditor must post a surety bond or deposit with the court. The bond must be sufficient to cover any possible loss or damage the debtor may suffer while the court has custody of the property. In the event the judgment is not awarded to the creditor, the debtor will be reimbursed from the bond.
Estate and Inheritance Tax Liens
Federal estate taxes and state inheritance taxes (as well as the debts of decedents) are general, statutory, involuntary liens that encumber a deceased person’s real and personal property. These are normally paid or cleared in probate court proceedings.
Bail Bond Lien
A real estate owner who is charged with a crime for which she must face trial may post bail in the form of real estate rather than cash. The execution and recording of such a bail bond creates a specific, statutory, voluntary lien against the owner’s real estate. If the accused fails to appear in court, the lien may be enforced by the sheriff or another court officer.
IRS Tax Lien
A federal tax lien, or Internal Revenue Service (IRS) tax lien, results from a person’s failure to pay any portion of federal taxes, such as income and withholding taxes. A federal tax lien is a general, statutory, involuntary lien on all real and personal property held by the delinquent taxpayer. Its priority, however, is based on the date of filing or recording; it does not supersede previously recorded liens.
Commercial Real Estate Broker Lien
The Commercial Real Estate Broker Lien Act permits commercial sponsoring brokers to place a lien on property in the amount of the commission they are entitled to receive for leasing as well as for a sale under a written brokerage agreement in the event they are not paid for their services. The lien applies to commercial property only, and it must be recorded before closing to be enforceable.
