In early 2011, the Illinois Supreme Court issued a 5-2 decision in a mechanics lien priority case that prompted one member of the Illinois State Bar to proclaim the decision marked the “death of the mechanics lien.” Two years later, the case is still making waves.
We originally reported the decision here in “Lien Priority Case Decided By Illinois Supreme Court,” and you can read all of the articles about the controversy in the tag: Lasalle Bank NA v. Cypress Creek I. Long story short: The Illinois Supreme Court had to decide what to do with a troubled construction project, and specifically with some money available to disburse between construction lender and mechanics lien claimants. Who had a priority interest in the money?
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The answer was that construction lenders were equal to mechanics lien claimants, so that the lien claimants would not have priority over the lenders.
Earlier this month, the Illinois State Legislature approved HB3636 to amend the mechanics lien act and overturn the Cypress Creek decision. The bill now simply awaits Governor Quinn’s decision and signature before becoming law. The Illinois Bankers Association put together a video to promote a “No” vote on the House Bill, and this video is pretty good to explain what the bill means (at least from their perspective). Watch the video here:
The guts of the new law provides as follows with respect to the priority war between mechanics lien claims and lender rights:
When the proceeds of a sale are insufficient to satisfy the claims of both previous incumbrancers and lien creditors, the proceeds of the sale shall be distributed as follows: (i) any previous incumbrancers shall have a paramount lien in the portion of the proceeds attributable to the value of the land at the time of making of the contract for improvements; and (ii) any lien creditors shall have a paramount lien in the portion of the proceeds attributable to the value of all subsequent improvements made to the property.
To better explain all of this broo-rah-ha, take a look at the video published by the Illinois Bankers Association who lobbied to defeat HB 3636. That video is embedded above. The lending interests hated HB 3636 because it gives lien claims a significant leg up on the lenders’ claims.
Fortunately for mechanics lien claimants in the state it looks like the lenders are on the losing side of this battle for now, and that the bill will soon become law. Read The Full Text of HB 3636 Here.