Public Act 099-0178
 
HB2635 EnrolledLRB099 03902 HEP 27327 b

    AN ACT concerning civil law.
 
    Be it enacted by the People of the State of Illinois,
represented in the General Assembly:
 
    Section 5. The Mechanics Lien Act is amended by adding
Section 38.1 as follows:
 
    (770 ILCS 60/38.1 new)
    Sec. 38.1. Substitution of bond for lien.
    (a) As used in this Section:
        (1) "Applicant" means:
            (A) an owner, other lien claimant, or other person
        having an interest in the property against which a lien
        claim under this Act is asserted;
            (B) an association representing owners organized
        under any statute or to which the Common Interest
        Community Association Act applies; or
            (C) any person who may be liable for the payment of
        a lien claim, including an owner, former owner,
        association representing owners organized under any
        statute or to which the Common Interest Community
        Association Act applies, or the contractor or
        subcontractor.
        (2) "Eligible surety bond" means a surety bond that
    meets all of the following requirements:
            (A) it specifically states that the principal and
        surety thereunder submit to the jurisdiction of the
        circuit court of the county where the property being
        improved is located and that a final non-appealable
        judgment or decree entered in a proceeding in favor of
        the lien claimant based on the lien claim that is the
        subject of an eligible surety bond shall constitute a
        judgment against the principal and surety of the bond
        for the amount found due to the lien claimant,
        including interest and attorney's fees, limited as to
        the principal and surety to the full amount of the
        bond;
            (B) it continues in effect until the complete
        satisfaction of the adjudicated amount due under the
        lien claim or the payment of the full amount of the
        bond or to a final determination, and the expiration of
        all appeal periods, that the lien claim is invalid,
        void, has been released by the lien claimant, or the
        time to enforce the lien claim has expired without the
        required action by the lien claimant;
            (C) it is in an amount equal to 175% of the amount
        of the lien claim;
            (D) it has as its surety a company that has a
        certificate of authority from the Department of
        Insurance specifically authorizing the company to
        execute surety bonds;
            (E) the surety has a current financial strength
        rating of not less than A with no rating modifier, an
        outlook which is either positive or stable, and a
        financial size category of not less than IX, as rated
        by A.M. Best Company, Inc.; and
            (F) if property affected by a mechanics lien is in
        a judicial circuit that has its own list of approved
        sureties, the bond shall be issued by a surety company
        specifically authorized to issue surety bonds for that
        circuit court by order or rule.
        (3) "Lien claim" means a claim, excluding interest and
    attorney's fees, on account of which (A) a notice or
    amended notice of claim for lien under Section 24 of this
    Act has been served; (B) a claim or amended claim for lien
    under Section 7 of this Act has been recorded; or (C) a
    suit to enforce a lien under this Act, including, but not
    limited to, an action under Section 9, 27, or 28 of this
    Act, has been filed. Unless otherwise indicated in this
    Section, "lien claim" is the lien claim to be affected by
    an eligible surety bond.
        (4) "Lien claimant" means the party whose lien claim is
    to be affected by an eligible surety bond.
        (5) "Prevailing party" means a lien claimant that is
    awarded a judgment equal to at least 75% of the amount of
    its lien claim, or the principal of the bond if the lien
    claimant is awarded a judgment equal to less than 25% of
    the amount of its lien claim; otherwise, no party is the
    prevailing party. For purposes of determining the
    prevailing party, the amount of the lien claim shall be
    reduced by any payments received by the lien claimant from
    any source before the entry of judgment or otherwise upon
    petition by the lien claimant, but only for good cause
    shown. If any party makes a payment to the lien claimant
    within 5 months of the filing of a complaint under this
    Section, the principal on the bond may petition the court
    for a reduction of the bond equal to the amount of the
    payment made.
    Except as otherwise expressly provided in this Section, the
terms not expressly defined in this Section have the same
meaning as they have under other provisions of this Act.
    (b) This Section applies to liens arising under Section 1
or 21 of this Act and to claims or actions arising under
Section 9, 27, or 28 of this Act.
    (c) An applicant may file a petition to substitute a bond
for the property subject to a lien claim with the clerk of the
circuit court of the county in which the property against which
the lien claim is asserted is located, or if there is a pending
action to enforce the lien claim, an applicant may at any time
prior to 5 months after the filing of a complaint or
counterclaim by a mechanics lien claimant to enforce its
mechanics lien claim. The petition shall be verified and shall
include:
        (1) the name and address of the applicant and the
    applicant's attorney, if any;
        (2) the name and address of the lien claimant;
        (3) if there is a suit to enforce the lien claim, the
    name of the attorney of record for the lien claimant, or if
    no suit has been filed but a lien claim has been recorded
    by the lien claimant, the name of the preparer of the lien
    claim;
        (4) the name and address of the owner of record of any
    real estate subject to the lien claim or the name and
    address of any condominium association or association to
    which the Common Interest Community Association Act
    applies representing owners of record if the association is
    an obligor under the bond;
        (5) a description of the property subject to the lien
    claim and, if the property includes real estate, both a
    common and legal description of the real estate, including
    the address, if any;
        (6) an attached copy of the lien claim which includes
    the date of its recording, where it was recorded, and the
    number under which it was recorded if there is no pending
    proceeding to enforce the lien claim;
        (7) an attached copy of the proposed eligible surety
    bond;
        (8) a certified copy of the surety's certificate of
    authority from the Department of Insurance or other State
    agency charged with the duty to issue such a certificate;
    and
        (9) an undertaking by the applicant to replace the bond
    with another eligible surety bond in the event that the
    proposed eligible surety bond at any time ceases to be an
    eligible surety bond.
    (d) The person filing a petition under this Section shall
personally serve or send via certified mail, return receipt
requested, to each person whose name and address is stated in
the petition and his or her attorney of record in a pending
action on the lien claim, a copy of the petition attached
together with the following notice:
 
    "PLEASE TAKE NOTICE that on .............(date), the
undersigned, ..............., filed a petition to substitute a
bond for property subject to a lien claim, a copy of which is
attached to this notice.
 
    PLEASE TAKE FURTHER NOTICE that if you fail to file an
objection to the substitution of a bond for the lien claim with
the clerk of the circuit court of .............. County under
general number .......... or case number .........., within 30
days after you receive this notice or 33 days after this notice
is mailed by certified mail, whichever date is earlier, you
will have waived your right to object and an order will be
entered substituting the security of the bond for the property
securing the lien claim and discharging the property described
in the petition as being subject to the lien, such as the real
estate and the moneys or other considerations due or to become
due from the owner to the contractor under the original
contract giving rise to the lien claim."
    (e) If no objection is filed to the substitution of the
proposed eligible surety bond for the property securing the
lien claim within 30 days after all persons entitled to notice
under subsection (d) of this Section have either received the
notice or have been served with the notice, or have waived any
objections to the substitution, if the petition complies with
the requirements of this Section, the court, on ex parte motion
of the petitioner, shall, if the court finds that the proposed
bond is in fact an eligible surety bond, enter an order:
        (1) substituting the eligible surety bond for the
    property securing the lien claim; and
        (2) substituting the lien claimant's right to recover
    on the bond for the lien claimant's causes of action that
    could be asserted by the lien claimant under Section 9, 27,
    or 28 of this Act.
    (f) If an objection is filed within 30 days of service of
notice required by this Section, the petitioner may, upon
notice to all parties to whom the notice was required to be
served, move for a hearing as to the adequacy of the proposed
eligible surety bond. The burden shall be upon the petitioner
to establish prima facie that the proposed surety bond is an
eligible surety bond. If it is established prima facie that the
bond is an eligible surety bond, the burden is on the objector
to prove that a proposed surety bond is not an eligible surety
bond. If at the conclusion of the hearing the court finds that
the proposed bond is in fact an eligible surety bond, it shall
enter an order:
        (1) substituting the eligible surety bond for the
    property securing the lien claim; and
        (2) substituting the lien claimant's right to recover
    on the bond for the lien claimant's causes of action that
    could be asserted by the lien claimant under Section 9, 27,
    or 28 of this Act.
    (g) If the court enters an order discharging as security
for the lien claim the real estate and claims under Sections 1,
9, 21, 27, and 28 of this Act, and substitutes the eligible
surety bond as security for the lien claim, the petitioner
shall:
        (1) send copies of the order to the lien claimant and
    all persons who were to receive copies of the petition and,
    if there is a pending proceeding to enforce the lien claim,
    to all parties who have appeared in the proceeding; and
        (2) record a copy of the order, together with an
    executed copy of the approved eligible surety bond, with
    the recorder of deeds of any county where the property is
    located.
    (h) If the eligible surety bond is approved either before
or after any suit is brought to enforce the lien claim, the
action on the bond shall be in equity against the principal and
surety of the bond. If the eligible surety bond is approved and
a proceeding to enforce the lien claim is pending, the bond
principals and sureties shall, by approval of the bond, ipso
facto become parties to the proceeding. All other parties to
the lien claim count or counts may be dismissed. An action
under this Section does not preclude a claimant from bringing
any other actions that do not arise under this Act.
    (i) Subject to the defenses allowable under subsection (j)
of this Section, the principal and surety of a surety bond
shall be jointly and severally liable to the lien claimant for
the amount that the lien claimant would have been entitled to
recover under this Act if no surety bond had been furnished,
subject to the limitation of liability of the surety to the
face amount of the bond. The prevailing party in an action
brought under this Section shall be awarded its reasonable
attorney's fees, but the attorney's fees for a lien claimant
that is a prevailing party shall be limited to the amount
remaining on the bond after the payment of the claim and
interest, and the attorney's fees awarded to a bond principal
shall be limited to 50% of the amount of the lien claim.
Judgment in favor of the lien claimant and against the
principal and surety shall be entered for the amount of their
liability to the lien claimant.
    (j) The principal and surety of the bond may assert only
those defenses that could have been asserted against the lien
claim by the principal of the eligible surety bond or the owner
of record of the real estate at the time the contractor's
contract under which the lien claimant is claiming was let as
if no surety bond had been issued.
    (k) Liability of the principal and surety on a bond that
has ceased to be an eligible surety bond shall continue until a
court order is entered replacing the bond with another eligible
surety bond. Even if a bond ceases to be an eligible surety
bond, the original bond remains in effect as substitute
security until it is replaced.
    (l) It is the express intent of the General Assembly in
enacting this Section that the entry of an order under this
Section substitutes an action on the bond for the actions the
lien claimant would otherwise have under Sections 9, 17, 27,
and 28 of this Act.

Effective Date: 1/1/2016