Subcontractor’s Mechanics Lien is Invalid Due to Failure to Serve 90-Day Notice to Lender
The Illinois Appellate Court, First District, recently held that a subcontractor’s lien does not have priority over a lender’s mortgage when the subcontractor fails to send or serve notice of its lien claim within 90 days after completion of its work to a known lender. Parkway Bank and Trust Co. v. Meseljevic, No. 1-09-3396 (Ill. App. Ct. Dec. 7, 2010).
In Parkway Bank, a developer began constructing a forty-unit commercial condominium project in Chicago in 2006. One of the subcontractors on the project, Beta Electric (“Beta”), contracted with the developer to perform the electrical work. When the developer failed to pay Beta for its work, Beta recorded a mechanics lien against sixteen of the condominium units. Shortly thereafter, the mortgagee, Parkway Bank and Trust Company (“Parkway”), filed a verified mortgage foreclosure complaint naming Beta, among others, as defendants. Beta filed a counterclaim to foreclose its mechanics lien.
Parkway moved to dismiss the counterclaim arguing that Beta did not properly perfect its mechanics lien and that the lien, therefore, had no priority over the mortgage. The court dismissed Beta’s counterclaim, finding that: (1) Beta was a subcontractor; (2) Beta did not give the statutorily required 90-day notice of the lien to Parkway; and (3) Parkway’s mortgage was, therefore, prior to and superior to Beta’s lien. The court reinstated a default judgment against Beta, denied Beta’s motion to reconsider, and granted Parkway’s motion to confirm the sale and distribution of the unsold condominium units.
On appeal, the appellate court affirmed the trial court’s dismissal finding that Beta did not properly perfect its lien. The court noted that according to Sections 1(a) and 21(a) of the Mechanics Lien Act (“Act”), Beta was a subcontractor, not a contractor, and Section 24(a) of the Act requires a subcontractor to send or serve a notice of its lien claim within 90 days after “completion” of its work to any lending agency, “if known.” 770 ILCS 60/24(a) (West 2010). Further, the court stated that Parkway was a “known” lender to Beta as the mortgage was properly recorded and the lender was readily discoverable by Beta. The court also noted that there was no question that Beta did not provide Parkway with notice of its lien. As such, the court held that Beta’s lien was invalid against Parkway.
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