Opinion ID: 2530186
Heading Depth: 1
Heading Rank: 7

Heading: Priority as to the Value of Paid-For Improvements

Text: We turn now to one remaining question: if the mortgagee is preferred to the value of the land at the time the owner contracts with the lien claimants, and the lien claimants are preferred only to the value of those improvements that form the basis of their liens, what becomes of any value attributable to those improvements that have been made by contractors after the contracts in question were entered into but who were paid for their work and therefore never filed liens? In Clark v. Moore, 64 Ill. 273 (1872), this court addressed the apportionment of proceeds as between mortgagees and mechanics lien claimants when the foreclosure sale proceeds were insufficient to satisfy both claims. In that case, the trial court found that, before any improvements were made, the property was worth $3,500, the lienholders contributed $14,000 in improvements, and the owner of the property paid $9,000 to other contractors for improvements to the property. Id. at 282. The parties disputed whether the mortgage or the mechanics liens had priority with respect to the enhanced value paid for by the owner. Id. This court held: [W]here, as in this case, there is a large proportion of the enhanced value of the property produced by the owner paying for labor and material furnished by others than the parties to the suit,    the enhanced value produced by the payment of money by the owner, whilst the work was progressing, should be applied to the satisfaction of the mortgages on the property; and if any portion of the fund thus created shall remain, to be applied to the satisfaction of the liens for labor and materials. It has always been recognized the true rule to hold all improvements placed by the mortgagor on the premises as being embraced in and subject to the mortgage. We can not suppose that they were intended, when made, to be for the benefit of other lien holders. Id. at 282-83. Rejecting interpretations that would give lienholders priority to or would give mortgagees and lienholders pro rata shares in the value attributable to these improvements, the Clark court further reasoned that the lienholders have their lien on the enhanced value they have given to the property, but have advanced neither money nor materials for which the owner has paid; and the subsequent mortgages may have been given to secure the very money paid by the owner for the labor and materials. Id. at 283. Though the Mechanics' Liens Act of 1895 provided that when the owner paid for such improvements, the enhanced value thereby given shall be treated as a fund in which the mortgagee and lienholder shall participate pro rata,  in 1903 the legislature substantially reenacted the earlier language that Clark interpreted. See Albrecht, 191 Ill.App. at 491. The logic of the Clark decision applies equally to this case, and we see no reason to depart from it. In this case, the trial court found that LaSalle paid $1,587,765 in lienable expenses [2] over the eight draws funded from Cypress's construction loan. The value of these improvements was thus paid by the owner or, at a minimum, on the owner's behalf. We fail to find a meaningful distinction between an owner paying the contractor from his bank account with presumably borrowed funds (given that all owners have a preexisting mortgage on the property when this statutory provision is in question) and authorizing the mortgagee to pay the contractor directly through a draw on the loan. In either case, the payments were presumably not made for the benefit of other lienholders. We find that neither Edon nor Eagle has made a compelling case for treating the payments made by LaSalle as anything other than payments made by the owner and applying that portion of the enhanced value of the property to the satisfaction of the mortgage held by LaSalle. Eagle argues that because in 1845,    a contractor who provided labor or material became a perfected lien claimant as soon as it provided services or material, Clark in essence held that a mortgagee or owner should get the benefit of payments made to perfected mechanics lien claimants who, at that time, was anyone who had provided labor or materials. Even if we presume this to be the case, the Clark court nowhere relied on principles of subrogation or the idea that the contractors paid by the owner in that case were perfected lien creditors. Instead, the court appeared to recognize that improvements paid for by the owner to property subject to a mortgage would presumably be paid for out of the proceeds of the mortgage, and therefore it is the mortgagee, not the lienholders, that should take priority with respect to the added value attributable to those improvements. Clark, 64 Ill. at 283 (noting that subsequent mortgages may have been given to secure the very money paid by the owner for the labor and materials).