Opinion ID: 2530186
Heading Depth: 1
Heading Rank: 6

Heading: Purpose of the Act and Practical Considerations

Text: Our reading is also consistent with both the purpose of the Act and the practicalities of construction lending. The Mechanics Lien Act aims to protect those who in good faith furnish material or labor for construction of buildings or public improvements. Lawn Manor Savings & Loan Ass'n v. Hukvari, 78 Ill.App.3d 531, 532, 33 Ill.Dec. 914, 397 N.E.2d 247 (1979). By giving lienholders priority only with respect to their improvements, the Act protects both the contractors and the prior encumbrancers. In its brief to the court, Edon argues that the Act is predicated on the theory that an owner should pay for the benefit derived from the labor and materials provided by a contractor by providing an equitable balance of the rights of owners, lenders and contractors. We find that this is accomplished by prioritizing lien claimants to the value of their improvements, instead of the value of all improvements. Were the lien claimants to be preferred to the value of all improvements, the lien claimants would be unjustly enriched, to the detriment of an owner or mortgagee who funded improvements other than those that form the basis for the liens. This would discourage lenders from lending more than the property is worth at the time the mortgage is issued, hindering developers' access to financing. Further, LaSalle argues that if, as under the appellate court's decision, the only way a mortgagee could get credit for the value of improvements it has funded is to be subrogated to a valid, perfected mechanics lien, lenders would have every reason to require contractors to file mechanics liens and to then evaluate their validity before paying the contractor for work done on the property. This would significantly increase the paperwork and the cost of financing any construction project. If every contractor had to file a lien before getting paid, this would also defeat one of the purposes of the recording requirement in the Act. Eagle notes that the notice and filing provisions give third parties notice of the existence, nature and character of lien claims, and allow them to gauge the enforceability of such claims. Eagle argues that these filings are important to contractors to give them an opportunity to review the public record and determine whether a project is in trouble based on the liens filed against a property. However, if a mortgagee were only entitled to be preferred to the value of the land at the time the mortgage was contracted into and not to any of the improvements the mortgagee has funded unless it is subrogated to a perfected mechanics lien, there would be multiple mechanics liens on every project, whether or not the project was in trouble and this signaling function of the recorded liens would be lost. For the foregoing reasons, we hold that section 16 of the Mechanics Lien Act gives mechanics lien claimants priority only with respect to the value of the property attributable to those improvements for which they furnished material or services. To the extent that the appellate court gave the lienholders priority with respect to all improvements made subsequent to the mortgage, we find that this was in error.