Friday, September 28, 2012

FYI: Ill App Ct Rules Mech Lien Claim Untimely Against Commercial Mortgagee, Where Pleading Not Separately Filed w/in Time Allowed

The Illinois Appellate Court, First District, recently held that a development company's attempt to enforce its mechanic's lien was time-barred as against a mortgagee, where the development company attached -- but did not separately file -- a pleading asserting its lien to a motion to vacate a default judgment within the statutory time period. 
A bank filed a complaint to foreclose a mortgage in 2007.  A development company with a mechanic's lien on the subject property was named as a defendant.  The bank then filed a motion for an order of default, alleging that the development company was properly served, but did not answer or appear.  The lower court found the development company in default, and entered an order for judgment of foreclosure and sale. 
The development company filed a motion to vacate the default for judgment, and for leave to intervene and file a counterclaim instanter.  A copy of the development company's proposed counterclaim was attached to the motion to vacate. 
The lower court found that the individual who was served on the part of the development company did not have authority to serve as that company's registered agent, and accordingly vacated the default judgment as to the development company.  The lower court also gave the development company leave to file its answer and counterclaim, which the development company did shortly thereafter. 
The bank then filed a motion for summary judgment, alleging that the development company failed to enforce its mechanic's lien within the time period required by the relevant statute.  The lower court granted the bank's motion, and the development company appealed. 
The Illinois mechanics lien statute provides that a suit or counterclaim to enforce a mechanic's lien must be filed within two years of the completion of the contract.  770 ILCS 60/9 (the "Act").
Here, the bank alleged that the work was completed on June 14, 2006, such that the development company's deadline to enforce its mechanic's lien was June 14, 2008.  The development company attached a proposed counterclaim to its motion to vacate on April 10, 2008.  However, the court did not rule on that motion to vacate until August 4, 2008, and the counterclaim was not actually filed until August 25, 2008. Therefore, the case turned on whether the development company's proposed counterclaim was sufficient to meet the statutory requirements. 
On appeal, the development company contended that it provided its proposed counterclaim to the lower court, along with a request for leave to file the same, prior to the expiration of the statutory deadline, and that it should not be penalized for the lower court's delay in granting that request, or for delay related to the fact that the bank opposed the motion.   
The Appellate Court disagreed.  It noted that both parties agree that the counterclaim was not filed until August 25, 2008, "which was after the two-year limitations period expired."  Further, the Appellate Court observed that "there is no indication in the record that after [the development company] filed its motion to vacate on April 10, 2008, that [the development company] ever informed the trial court that its two-year deadline was approaching...or that an expedited hearing was needed."
The Appellate Court also rejected the development company's contention that the only course of action open to it was to file a motion to vacate.  Because the development company had reason to believe that the judgment of foreclosure was void, the Appellate Court noted that it "could have filed its own case to foreclose the lien before the [statutory deadline] elapsed because a void judgment could be attacked directly or collaterally." 
Therefore, the Appellate Court held that the Illinois mechanics lien statute "provides that the counterclaim must be filed within two years of the completion of work, not merely presented as an attachment."  Accordingly, it affirmed the judgment of the lower court.  

Ralph T. Wutscher
McGinnis Wutscher LLP
The Loop Center Building
105 W. Madison Street, 18th Floor
Chicago, Illinois 60602
Direct: (312) 551-9320
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