Illinois Set to Enact Lien Bond Requirement

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The 99th Illinois General Assembly has sent a bill to the governor’s office that, if approved, would establish a lien bond as a substitute for real property as the security for the lien. The bill, HB-2635, amends the Mechanics Lien Act and adds Illinois to a long list of states with existing lien bonds for contractors and subcontractors.

Who is affected?

Anyone who provides improvements to personal or real property, typically subcontractors or suppliers, can secure a surety bond as the guarantee for proper payment in return for labor or materials supplied. Project owners who are liable for payments made to the lien claimant could petition for a surety bond as a substitute for the property subject to a lien claim.

What are the bond provisions?

The lien bond must be set in an amount equal to 175% of the value of the lien. The surety providing the bond must have a certificate of authority from the Department of Insurance specifically authorizing the surety to execute bonds. The surety must also have a financial strength rating of at least A, a positive or stable outlook and a financial size category of at least IX, as determined by A.M. Best Company, Inc. In the case of action against this bond, the prevailing party will be awarded its attorney’s fees. However, if the lien claimant is the prevailing party, the attorney’s fees will be limited to the remaining bond amount after the claim payment and interest. If the principal is the prevailing party, the attorney’s fees will be limited to 50% of the claim amount.

What are the petition requirements?

A project owner can submit a petition to the clerk of the circuit court of the county in which the property is located, as long as he or she does so before 5 months after the mechanics lien claim is filed. This petition, if approved, would establish a surety bond as a substitute for property as the security for a mechanics lien claim. The following is required for this petition:

  • name and address of applicant and applicant’s attorney
  • name and address of lien claimant
  • name of attorney or record for lien claimant or preparer of lien claim
  • name and address of any owner of real estate subject to lien claim
  • description of property subject to lien claim
  • an attached copy of the lien claim
  • an attached copy of the bond
  • copy of the surety’s certificate of authority

If 30 days pass and there is no objection submitted by the lien claimant, the court will substitute the bond for the property securing the lien claim (as long as the court determines the bond is eligible). If there is a filed objection within 30 days, there will be a hearing to settle the matter in court.

What’s next?

This bond is awaiting the signature of Gov. Bruce Rauner to become law. Both houses passed this bill in the 99th General Assembly on June 29.

UPDATE: Illinois Approves Lien Bond as Property Substitute

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