Although a title company is a critical partner in any real estate deal, they can be particularly valuable in the context of commercial real estate (CRE) transactions. When you purchase a new commercial property, your title company performs a pre-purchase title search, provides owners and lenders title insurance policies, maintains an escrow account for construction and other costs, handles closing documentation, and works with you and your lender to monitor construction complications.
One of the most common complications in commercial real estate transactions is the mechanics lien. A publicly filed lien places a cloud on title, and can make a commercial property unsaleable. A lien can also interfere with the ability to obtain or maintain financing, and can add to the complexity of any deal. Learning to understand the answers to the most frequently asked questions about mechanics liens in commercial real estate transactions is key to avoiding the potential complications that might be associated with construction.
What Is A Mechanics Lien?
First, let’s understand what, exactly, a mechanics lien is. Generally, a mechanics lien is a legal right or claim against your property, filed and held by a lienholder, in this case a contractor, supplier, or other qualified worker who performed work on the property for which they were not properly compensated.
A mechanics lien may be levied against the property by any contractor who has not been paid for services rendered, and the lien prevents the property’s owner from transferring the property without first paying the contractor. The mechanics lien also allows the contractor who holds the lien to foreclose on the property.
A mechanics lien is a creation of statute — that is, who qualifies to file a mechanics lien, for what purpose, and within what timeframe, are all determined by law. These rules can vary from state to state, so even experienced investors should be familiar with the rules that apply in your state.
How Are Mechanics Liens Filed In Illinois
In Illinois, the right to a mechanics lien is found in the Mechanics Lien Act, which defines a “contractor” who can hold a mechanics lien as follows:
Any person who shall by any contract or contracts, express or implied, or partly expressed or implied, with the owner of a lot or tract of land, or with one whom the owner has authorized or knowingly permitted to contract, to improve the lot or tract of land or for the purpose of improving the tract of land, or to manage a structure under construction thereon
The contractor must file their claim of lien with the recorder of deeds office in the county in which the property is situated. The lien must be filed within four months after the last day of work performed. The claim must include a “brief statement of the claimant’s contract, the balance due after allowing all credits, and a sufficiently correct description of the lot, lots or tracts of land to identify the same.”
The lienholder has two years from the date of filing of the lien to bring a court action to enforce the lien.
Mechanics Liens In Wisconsin
In Wisconsin, mechanics liens are referred to as “construction liens,” and are governed by Wisconsin’s Construction Lien Law. Contractors in Wisconsin have six months after the last day on which labor and/or materials were furnished to the project, but at least 30 days after the contractor files a Notice of Intention to File a Claim of Lien. The lien must also be served on the property owner within 30 days of the filing of the lien. A Claim of Lien must include a “legal property description of the property against which the lien is claimed.”
Similar to Illinois, Wisconsin law allows contractors two years from the date they file the lien to bring a civil court action to enforce the lien.
Lien Rights Of Subcontractors
Subcontractors are providers who do not contract with the owner, but instead have a contract with another contractor to provide work. These groups may also file mechanics liens if they are not paid in accordance with the contract they have with the property’s general contractor (or another subcontractor). In both Illinois and Wisconsin, subcontractors have the right to file a lien against the property if they are not properly paid, even if the property owner paid the general contractor.
What Costs Can Be Included In The Lien?
In Wisconsin, lienholders are generally limited to recovery of the amount contracted to be paid on the project, and attorneys fees, collections costs, and other ancillary costs are not recoverable. In Illinois, however, courts may allow a more broad recovery of costs, including interest, legal fees, and some other costs.
Landtrust Title: Commercial Title Services Done Differently
At Landtrust Title, we understand that commercial title requires a different kind of expertise — you need a partner you can trust to handle deals of every size and level of complexity, without ever treating you like a number. That’s where our team of highly experienced title professionals comes in. With Landtrust, you’ve got someone in the trenches with you, focused on solving problems and making sure every deal is closed smoothly. We understand the ins and outs of commercial title and construction services — and how difficult it can be to get real support you can rely on. That’s why we’re doing things differently. We work alongside you as your advocates, offering personalized attention and creative solutions that ensure your deal gets done perfectly and on time, every time. Think of us as your very own title team. Start the conversation by contacting us at firstname.lastname@example.org or by phone at (312) 528-9210.