Illinois law just became clear that architects, engineers, land surveyors, and property managers have mechanics lien rights under the Illinois Mechanics Lien Act, 770 ILCS 60/1, similar to any other contractor. Prior to the Illinois Supreme Court’s recent ruling in Christopher B. Burke Engineering, Ltd. v. Heritage Bank of Centr. Ill., 2015 IL 118955 (Nov. 19, 2015), there was a split in Illinois appellate courts on whether these professionals could file and foreclose on mechanics liens. But in Burke Engineering, the state’s high court ruled that architects, engineers, land surveyors, and property managers are indeed “contractors” who provide “improvements” under the Act. See Burke Engineering, 2015 IL 118955, ¶21.
The Mechanics Lien Act
A basic understanding of the Mechanics Lien Act is helpful to understanding the court’s decision in the Burke Engineering case. The Act gives a lien to contractors who provide services, materials, or equipment toward improving real estate pursuant to a contract. 770 ILCS 60/1, 21. Mechanics liens can be held on private or public improvement projects by contractors or subcontractors as security in exchange for the services, materials, or equipment they provided. See 770 ILCS 60/1, 23. An original “contractor” is any person who renders services pursuant to a contract with an owner of the real estate. See 770 ILCS 60/1(a). A “subcontractor” is an entity who provides services, material, or equipment toward improvements on real estate pursuant to a contract with someone other than the owner. See 770 ILCS 60/21. Material suppliers are considered subcontractors and may file and enforce mechanics liens under the Act. See Brady Brick & Supply Co. v. Lotito, 43 Ill. App. 3d 69 (2d Dist. 1976). 770 ILCS 60/21.
A mechanics lien must be filed, and notices delivered, within specified periods of time to perfect the lien. See 770 ILCS 60/7, 21, 23. Once perfected, an original contractor or a subcontractor may foreclose the lien using a similar procedure to mortgage foreclosure. 770 ILCS 60/19. If the proceeds of the foreclosure sale are insufficient to cover the debt, the Act requires the entry of a deficiency judgment against the owner. 770 ILCS 60/19; Hinkle v. Creek, 113 Ill. App. 2d 454 (4th Dist. 1969). Most importantly, the Act gives holders of mechanics liens priority of payment over lenders in a foreclosure sale. See 770 ILCS 60/16. There is a 10% interest rate on unpaid mechanics liens. See 770 ILCS 60/1(a). Mechanics lienholders who successfully foreclose the lien are entitled to have their costs of suit paid for by the losing party. 770 ILCS 60/17(a). After it enters a judgment, a court may award attorney fees if the court finds that the lien claimant brought the claim “without just cause or right” or, conversely, if the court finds that the owner refused to pay for the improvements “without just cause or right.” 770 ILCS 60/17(b), (c). A costs and fee provision in the contract would obligate the losing party in a lien foreclosure suit to pay costs and fees even if “just cause or right” is found, so contractors are advised to include a costs and fees provision in their service agreement.
The Burke Engineering Case
In the Burke Engineering case, a land surveyor was retained by a residential subdivision developer to record a final plat, conduct a wetlands survey, and provide road, utility, and sewer planning services. Burke Engineering, 2015 IL 118955, ¶4. After the surveyor provided $109,549.69 worth of services, the developer built only one house, stopped work on the subdivision, and declared bankruptcy. See Burke Engineering, 2015 IL 118955, ¶4. The surveyor invoiced the developer, received no payment, filed a lien on the property, and filed suit to foreclose on the lien against the bank that owned a mortgage and the owners of the only house built. See Burke Engineering, 2015 IL 118955, ¶4.
The Peoria County Circuit Court found that the Act did not entitle the land surveyor to a mechanics lien because the surveyor’s services did not “improve” the property under the Act. See Burke Engineering, 2015 IL 118955, ¶7. Section 1 of the Act defines an “improvement” to real property as:
“furnishing labor, services, material, fixtures, apparatus or machinery, forms or form work in the process of construction …; or fill, sod or excavate such lot or tract of land, or do landscape work thereon or therefor; or raise or lower any house thereon or remove any house thereto, or remove any house or other structure therefrom, or perform any services or incur any expense as an architect, structural engineer, professional engineer, land surveyor or property manager in, for or on a lot or tract of land for any such purpose; … ”
770 ILCS 60/1(b). The Third District Appellate Court agreed with the trial court that the surveyor’s services were not “improvements” under the Act because there were no physical improvement to the property or calculable increase in the property’s value. See Burke Engineering, 2015 IL 118955, ¶7; see Christopher B. Burke Engineering, Ltd. v. Heritage Bank of Centr. Ill., 2015 IL App (3d) 140064, ¶ 18.
The bank also argued that the legislature’s placement of a semicolon after the phrase, “… or do landscape work thereon or therefor;” was intended to limit the mechanics lien rights of architects, engineers, land surveyors and property managers to only those services and materials provided in connection with “raising… lowering… or removing… a structure.” See 770 ILCS 60/1(b). The bank argued that the surveyor did not provide services in connection with raising, lowering, or removing a structure and therefore the surveyor is not entitled to a lien under Section 1 of the Act. See Burke Engineering, 2015 IL 118955, ¶7; 770 ILCS 60/1.
The Illinois Supreme Court reversed the appellate court’s ruling and dismissed the bank’s arguments. See Burke Engineering, 2015 IL 118955, ¶28. The court ordered that the surveyor can file and foreclose on a mechanics lien as could any other contractor, if the surveyor can show it contracted with the owner. Burke Engineering, 2015 IL 118955, ¶28. The court refuted the appellate court’s finding of law that a contractor’s services must result in a physical or measurable improvement to the land or structure by citing to early 20th century case law establishing legal precedent for the surveyor’s mechanics lien. See Burke Engineering, 2015 IL 118955, ¶¶12-14. The court further reasoned, “If a physical improvement is required in order for an engineer to secure a lien for their work, then these professionals would be subject to the whims of the parties with whom they contract, who may decide to complete the project or not. Such an outcome is contrary to the protective purpose of the Act.” Burke Engineering, 2015 IL 118955, ¶¶12-14.
The Illinois Suprem Court also rejected the bank’s argument that the legislature placed the semicolon where it did because it intended to limit the scope of certain professionals’ lien rights. Burke Engineering, 2015 IL 118955, ¶¶17-19. The Illinois Supreme Court reasoned that such an interpretation is illogical: the legislature would not have purposely limited the mechanic lien rights of architects, engineers, surveyors, and property managers to raising, lowering, or removing houses because these professions usually do not participate in to raising, lowering, or removing houses. Burke Engineering, 2015 IL 118955, ¶19. However, the court ruled that Section 1 still required the surveyor to prove that it had a contract with the owner of the property, so the case was sent back to the trial court for resolution of this issue. Burke Engineering, 2015 IL 118955, ¶19.
Impact of Burke Engineering case
Architects, engineers, surveyors, and property managers have been filing and foreclosing on mechanics liens for years, but with mixed results. The significance of the Burke Engineering case for these professionals is that they can now perform work statewide with the confidence that their mechanics lien will be enforced because the state’s highest court has settled the issue. On the other hand, the Burke Engineering case creates for owners and lenders the unpleasant certainty of having to contend with these professionals’ liens in a foreclosure suit, as well as the resultant dilution of their shares of the foreclosure sale proceeds, since mechanics liens have priority over mortgages. See 770 ILCS 60/16.