If no objections are filed in this 30-day window, the applicant may proceed ex parte to establish that the surety bond is eligible. If the court agrees, it will enter an order "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 claim".(3) If objections are filed, a hearing is set to determine the eligibility of the surety bond. Unlike many other states, where an applicant can simply file the surety bond with the county to accomplish substitution of the bond for the property, Illinois has built in an objection period, which could delay obtaining clear title to the property and any related sale or refinance. Once a surety bond has been approved by the court, the lien claimant's action to recover on the bond can be asserted against only the principal and surety. No other parties are necessary to the litigation. Importantly, the principal and surety become jointly and severally liable to the lien claimant, but are entitled to raise defences, which are limited to those that could have been brought against the lien claimant as if no surety bond were issued. Attorneys' fees awarded to prevailing party Section 38.1 provides for a mandatory award of attorneys' fees to the "prevailing party" in the bond litigation, an award that might not otherwise be available in mechanics lien litigation.(4) A lien claimant is deemed the prevailing party if the judgment amount is equal to at least 75% of the amount of the lien claim; the award is capped at the amount remaining on the bond after judgment. The principal is deemed the prevailing party if the judgment amount is equal to or less than 25% of the amount of the lien claim; the cap is 50% of the lien claim amount. Accordingly, applicants should evaluate the extent to which they believe the lien claim is overstated when considering whether to proceed under Section 38 1.

An unsuccessful challenge could result in the payment of not only the lien claim and interest, but also attorneys' fees. Comment The newfound ability to bond over liens in Illinois is a powerful new tool for property owners and lenders that are looking to sell or refinance a property that is subject to a disputed mechanics lien claim. However, it is not a panacea and comes with significant cost. The 175% bond requirement and concerns over accruing interest and prevailing party attorneys' fee provisions will likely make applicants consider alternatives, including settlement of the disputed lien claim, before turning to this new mechanism. For further information on this topic please contact William J Dorsey or Daniel J Elrod at Katten Muchin Rosenman LLP by telephone (+1 312 902 5200) or email (william.dorsey@kattenlaw.com or daniel.elrod@kattenlaw.com).

The Katten Muchin Rosenman LLP website can be accessed at www.kattenlaw.com. Endnotes (1) 770 ILCS 60/0.01 et seq. (2) 770 ILCS 60/38.1(c). (3) 770 ILCS 38.1(e)(1). (4) 770 ILCS 38.1(i). The materials contained on this website are for general information purposes only and are subject to the disclaimer. .