ILLINOIS—HB3636—New Law Is In Effect

Effective February 12, 2013, HB3636 amends the Illinois Mechanics Lien Act. This legislation was in response to 2011 case law (LaSalle Bank, N.A. v. Cypress Creek) that had allowed banks to recover the vast majority of sale proceeds from foreclosures. The legislation provides “When the proceeds of a sale are insufficient to satisfy the claims of both previous incumbrancers and lien creditors, the proceeds of the sale shall be distributed as follows: (i) any previous incumbrancers shall have a paramount lien in the portion of the proceeds attributable to the value of the land at the time of making of the contract for improvements; and (ii) any lien creditors shall have a paramount lien in the portion of the proceeds attributable to the value of all subsequent improvements made to the property.” Additionally, provisions have been added to the statute when an owner serves notice upon a lien claimant to file suit within 30 days. An express warning must now be included in the written demand stating: “The failure to respond to the notice within 30 days after receipt of the notice results in forfeiture of the lien.”

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