Illinois General Assembly - Full Text of HB2635
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Full Text of HB2635  99th General Assembly




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1    AN ACT concerning civil law.
2    Be it enacted by the People of the State of Illinois,
3represented in the General Assembly:
4    Section 5. The Mechanics Lien Act is amended by adding
5Section 38.1 as follows:
6    (770 ILCS 60/38.1 new)
7    Sec. 38.1. Substitution of bond for lien.
8    (a) As used in this Section:
9        (1) "Applicant" means:
10            (A) an owner, other lien claimant, or other person
11        having an interest in the property against which a lien
12        claim under this Act is asserted;
13            (B) an association representing owners organized
14        under any statute or to which the Common Interest
15        Community Association Act applies; or
16            (C) any person who may be liable for the payment of
17        a lien claim, including an owner, former owner,
18        association representing owners organized under any
19        statute or to which the Common Interest Community
20        Association Act applies, or the contractor or
21        subcontractor.
22        (2) "Eligible surety bond" means a surety bond that
23    meets all of the following requirements:



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1            (A) it specifically states that the principal and
2        surety thereunder submit to the jurisdiction of the
3        circuit court of the county where the property being
4        improved is located and that a final non-appealable
5        judgment or decree entered in a proceeding in favor of
6        the lien claimant based on the lien claim that is the
7        subject of an eligible surety bond shall constitute a
8        judgment against the principal and surety of the bond
9        for the amount found due to the lien claimant,
10        including interest and attorney's fees, limited as to
11        the principal and surety to the full amount of the
12        bond, payable no later than 14 days after the
13        expiration of all appeal periods;
14            (B) it continues in effect until the complete
15        satisfaction of the adjudicated amount due under the
16        lien claim or the payment of the full amount of the
17        bond or to a final determination, and the expiration of
18        all appeal periods, that the lien claim is invalid,
19        void, has been released by the lien claimant, or the
20        time to enforce the lien claim has expired without the
21        required action by the lien claimant;
22            (C) it is in an amount equal to 175% of the amount
23        of the lien claim;
24            (D) it has as its surety a company that has a
25        certificate of authority from the Department of
26        Insurance specifically authorizing the company to



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1        execute surety bonds;
2            (E) the surety has a current financial strength
3        rating of not less than A with no rating modifier, an
4        outlook which is either positive or stable, and a
5        financial size category of not less than IX, as rated
6        by A.M. Best Company, Inc.; and
7            (F) if property affected by a mechanics lien is in
8        a judicial circuit that has its own list of approved
9        sureties, the bond shall be issued by a surety company
10        specifically authorized to issue surety bonds for that
11        circuit court by order or rule.
12        (3) "Lien claim" means a claim on account of which (A)
13    a notice of claim for lien under Section 24 of this Act has
14    been served; (B) a claim for lien under Section 7 of this
15    Act has been recorded; or (C) a suit to enforce a lien
16    under this Act, including, but not limited to, an action
17    under Section 9, 27, or 28 of this Act, has been filed.
18    Unless otherwise indicated in this Section, "lien claim" is
19    the lien claim to be affected by an eligible surety bond.
20        (4) "Lien claimant" means the party whose lien claim is
21    to be affected by an eligible surety bond.
22        (5) "Prevailing party" means a lien claimant that
23    recovers at least 75% of the amount of its lien claim, or
24    the principal of the bond if the lien claimant recovers
25    less than 25% of the amount of its lien claim; otherwise,
26    no party is the prevailing party.



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1    Except as otherwise expressly provided in this Section, the
2terms not expressly defined in this Section have the same
3meaning as they have under other provisions of this Act.
4    (b) This Section applies to liens arising under Section 1
5or 21 of this Act and to claims or actions arising under
6Section 9, 27, or 28 of this Act.
7    (c) An applicant may file a petition to substitute a bond
8for the property subject to a lien claim with the clerk of the
9circuit court of the county in which the property against which
10the lien claim is asserted is located, or if there is a pending
11action to enforce the lien claim, an applicant may at any time
12prior to 5 months after the filing of a complaint or
13counterclaim by a mechanics lien claimant to enforce its
14mechanics lien claim, and thereafter for good cause shown,
15apply to become a party to the pending action at any time
16before a final judgment is rendered and file a petition to
17substitute a bond for the property subject to the lien claim in
18the pending action. The petition shall be verified and shall
20        (1) the name and address of the applicant and the
21    applicant's attorney, if any;
22        (2) the name and address of the lien claimant;
23        (3) if there is a suit to enforce the lien claim, the
24    name of the attorney of record for the lien claimant, or if
25    no suit has been filed but a lien claim has been recorded
26    by the lien claimant, the name of the preparer of the lien



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1    claim;
2        (4) the name and address of the owner of record of any
3    real estate subject to the lien claim or the name and
4    address of any condominium association or association to
5    which the Common Interest Community Association Act
6    applies representing owners of record if the association is
7    an obligor under the bond;
8        (5) a description of the property subject to the lien
9    claim and, if the property includes real estate, both a
10    common and legal description of the real estate, including
11    the address, if any;
12        (6) an attached copy of the lien claim which includes
13    the date of its recording, where it was recorded, and the
14    number under which it was recorded if there is no pending
15    proceeding to enforce the lien claim;
16        (7) an attached copy of the proposed eligible surety
17    bond;
18        (8) a certified copy of the surety's certificate of
19    authority from the Department of Insurance or other State
20    agency charged with the duty to issue such a certificate;
21    and
22        (9) an undertaking by the applicant to replace the bond
23    with another eligible surety bond in the event that the
24    proposed eligible surety bond at any time ceases to be an
25    eligible surety bond.
26    (d) The person filing a petition under this Section shall



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1personally serve or send via certified mail, return receipt
2requested, to each person whose name and address is stated in
3the petition, or his or her attorney of record in a pending
4action, a copy of the petition attached together with the
5following notice:
6    "PLEASE TAKE NOTICE that on .............(date), the
7undersigned, ..............., filed a petition to substitute a
8bond for property subject to a lien claim, a copy of which is
9attached to this notice.
10    PLEASE TAKE FURTHER NOTICE that if you fail to file an
11objection to the substitution of a bond for the lien claim with
12the clerk of the circuit court of .............. County under
13general number .......... or case number .........., within 30
14days after you receive this notice or 33 days after this notice
15is mailed by certified mail, whichever date is earlier, you
16will have waived your right to object and an order will be
17entered substituting the security of the bond for the property
18securing the lien claim and discharging the property described
19in the petition as being subject to the lien, such as the real
20estate and the moneys or other considerations due or to become
21due from the owner to the contractor under the original
22contract giving rise to the lien claim."
23    (e) If no objection is filed to the substitution of the
24proposed eligible surety bond for the property securing the



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1lien claim within 30 days after all persons entitled to notice
2under subsection (d) of this Section have either received the
3notice or have been served with the notice, or have waived any
4objections to the substitution, if the petition complies with
5the requirements of this Section, the court, on ex parte motion
6of the petitioner, shall, if the court finds that the proposed
7bond is in fact an eligible surety bond, enter an order:
8        (1) substituting the eligible surety bond for the
9    property securing the lien claim; and
10        (2) substituting the lien claimant's right to recover
11    on the bond for the lien claimant's causes of action that
12    could be asserted by the lien claimant under Section 9, 27,
13    or 28 of this Act.
14    (f) If an objection is filed within 30 days of service of
15notice required by this Section, the petitioner may, upon
16notice to all parties to whom the notice was required to be
17served, move for a hearing as to the adequacy of the proposed
18eligible surety bond. The burden shall be upon the petitioner
19to establish prima facie that the proposed surety bond is an
20eligible surety bond. If it is established prima facie that the
21bond is an eligible surety bond, the burden is on the objector
22to prove that a proposed surety bond is not an eligible surety
23bond. If at the conclusion of the hearing the court finds that
24the proposed bond is in fact an eligible surety bond, it shall
25enter an order:
26        (1) substituting the eligible surety bond for the



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1    property securing the lien claim; and
2        (2) substituting the lien claimant's right to recover
3    on the bond for the lien claimant's causes of action that
4    could be asserted by the lien claimant under Section 9, 27,
5    or 28 of this Act.
6    (g) If the court enters an order discharging as security
7for the lien claim the real estate and claims under Sections 1,
89, 21, 27, and 28 of this Act, and substitutes the eligible
9surety bond as security for the lien claim, the petitioner
11        (1) send copies of the order to the lien claimant and
12    all persons who were to receive copies of the petition and,
13    if there is a pending proceeding to enforce the lien claim,
14    to all parties who have appeared in the proceeding; and
15        (2) record a copy of the order, together with an
16    executed copy of the approved eligible surety bond, with
17    the recorder of deeds of any county where the property is
18    located.
19    (h) If the eligible surety bond is approved either before
20or after any suit is brought to enforce the lien claim, the
21action on the bond shall be in equity against the principal and
22surety of the bond. If the eligible surety bond is approved and
23a proceeding to enforce the lien claim is pending, the bond
24principals and sureties shall, by approval of the bond, ipso
25facto become parties to the proceeding. All other parties to
26the proceedings may be dismissed.



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1    (i) If the bond ceases to be an eligible surety bond, the
2court may, after due notice and a hearing, order the surety to
3deposit the collateral for the bond posted by the principal
4with the surety with the clerk of the court or to assign the
5security to an alternative surety company that is ready,
6willing, and able to issue an eligible surety bond. Upon the
7deposit or assignment, the court shall release the original
8surety from its obligations under the original surety bond.
9    (j) Subject to the defenses allowable under subsection (k)
10of this Section, the principal and surety of a surety bond
11shall be jointly and severally liable to the lien claimant for
12the amount that the lien claimant would have been entitled to
13recover under this Act if no surety bond had been furnished,
14subject to the limitation of liability of the surety to the
15face amount of the bond. The prevailing party in an action
16brought under this Section shall be awarded its attorney's
17fees, but the attorney's fees for a lien claimant that is a
18prevailing party shall be limited to the amount remaining on
19the bond after the payment of the claim and interest, and the
20attorney's fees awarded to a bond principal shall be limited to
2150% of the amount of the lien claim. Judgment in favor of the
22lien claimant and against the principal and surety shall be
23entered for the amount of their liability to the lien claimant.
24    (k) The principal and surety of the bond may assert only
25those defenses that could have been asserted against the lien
26claim by the principal of the eligible surety bond or the owner



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1of record of the real estate at the time the contractor's
2contract under which the lien claimant is claiming was let as
3if no surety bond had been issued.
4    (l) Liability of the principal and surety on a bond that
5has ceased to be an eligible surety bond shall continue until a
6court order is entered replacing the bond with another eligible
7surety bond. Even if a bond ceases to be an eligible surety
8bond, the original bond remains in effect as substitute
9security until it is replaced.
10    (m) It is the express intent of the General Assembly in
11enacting this Section that the entry of an order under this
12Section substitutes an action on the bond for the actions the
13lien claimant would otherwise have under Sections 9, 17, 27,
14and 28 of this Act.