978-1285770178 Case Problem Case CPC-20-06 Part 2

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925 N.E.2d 233

Page 7

398 Ill.App.3d 592, 925 N.E.2d 233, 338 Ill.Dec. 736

(Cite as: 398 Ill.App.3d 592, 925 N.E.2d 233, 338 Ill.Dec. 736)

Edon: $285,827 **/$2,068,699 = 15% = approximately $50,000

LaSalle subrogation: $1,587,765/$2,068,699 = 76% = $256,514

Value of land: $522,214 x 40% = $215,100 to LaSalle

* remaining $ from sale proceeds

** contract price

Edon and Eagle filed motions for modification of the judgment, challenging the trial court’s priority determinations. The trial

court denied the motions in January 2008. Thereafter, Edon appealed the trial court’s allocation of the sale proceeds, and Ea-

gle joined Edon in its appeal. LaSalle cross-appealed the trial court’s denial of its request for attorney fees.

mechanic’s lien claimant for monies it paid in construction and development costs through funding draws from the trust. They

submit that the trial court improperly elevated mortgagee LaSalle to the status of a mechanic’s lien claimant in that there was

no evidence that the amounts paid by LaSalle were lienable costs or that any mechanic’s liens were perfected to which

LaSalle could be subrogated.

material shall have been satisfied, and upon questions arising between incumbrancers and lien creditors, all previous in-

cumbrances shall be preferred to the extent of the value of the land at the time of making of the contract, and the lien credi-

tor shall be preferred to the value of the improvements erected on said premises, and the court shall ascertain by jury or

otherwise, as the case may require, what proportion of the proceeds of any sale shall be paid to the several parties in inter-

est.” 770 ILCS 60/16 (West 2006).

claimant depends on the date the mortgage was recorded and the date the underlying construction contract was executed.

State Bank of Lake Zurich v. Winnetka Bank, 245 Ill.App.3d 984, 993, 185 Ill.Dec. 421, 614 N.E.2d 862, 869 (1993). When a

lien claimant’s contract predates the recording of the mortgage, the lien has priority over the mortgage. State Bank, 245

Ill.App.3d at 989, 185 Ill.Dec. 421, 614 N.E.2d at 869. When the recording of the mortgage occurs before the construction

contracts are executed, the mechanic’s lien is preferred only in proportion to the value of the improvements forming the basis

925 N.E.2d 233

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398 Ill.App.3d 592, 925 N.E.2d 233, 338 Ill.Dec. 736

(Cite as: 398 Ill.App.3d 592, 925 N.E.2d 233, 338 Ill.Dec. 736)

same proportionate interest in the sale proceeds that they had in the property prior to its sale. Moulding-Brownell Corp. v.

E.C. Delfosse Construction Co., 304 Ill.App. 491, 498, 26 N.E.2d 709, 712 (1940). When the sale proceeds are insufficient to

satisfy the mortgage and the mechanic‘s liens, the court employs the proportionality analysis set forth in section 16 of the Act

to allocate the sale proceeds. 770 ILCS 60/16 (West 2006); Petroline Co. v. Advanced Environmental Contractors, Inc., 305

their liens before the mortgagee‘s claim is considered. Rather, priority is determined by first looking at whether the lien

claimants’ underlying contracts were executed before or after the mortgage was recorded. In this case, both Edon and Eagle

entered into contracts with Cypress Creek, the owner and developer, after LaSalle had recorded its mortgage on June 13,

2003. Eagle’s contract with Cypress was dated December 7, 2004, and Edon contracted with Cypress on January 18, 2005.

Because the mortgage predated the underlying contracts, the liens are preferred to the extent of the value of the improvements

it determined the parties’ proportional shares. Edon and Eagle assert that LaSalle is not entitled to be subrogated as a lien

claimant, arguing that LaSalle is not a lien creditor and that the amounts it disbursed were secured by the mortgage.

[4][5][6] The purpose of the Mechanics’ Lien Act is to protect those who, in good faith, furnish material or labor for construc-

tion of buildings. Lawn Manor Savings & Loan Ass’n v. Hukvari, 78 Ill.App.3d 531, 532, 33 Ill.Dec. 914, 397 N.E.2d 247,

Hudes, 17 Ill.App.2d 514, 521, 151 N.E.2d 136, 139 (1958).

The trial court found that LaSalle was subrogated for the construction and development costs it funded through the construc–

tion draws in the amount of $1,587,765, including $1,446,266 for construction costs, $99,917 for engineering costs, $2,842

for environmental reports, $8,538 for utilities, and $30,202 to pay the perfected mechanic’s lien of Basic Development.

the Basic Development lien, which LaSalle paid in full because Basic Development’s contract with Cypress predated

LaSalle’s mortgage.

The fact that as the construction lender LaSalle supplied the funds from which the contractors were paid does not place

LaSalle in the position of an owner or mortgagor whose payments to contractors enhanced the value of the property. In Clark,

925 N.E.2d 233

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398 Ill.App.3d 592, 925 N.E.2d 233, 338 Ill.Dec. 736

(Cite as: 398 Ill.App.3d 592, 925 N.E.2d 233, 338 Ill.Dec. 736)

bar, LaSalle was neither the owner nor the mortgagor of the subject property at the time the payments for labor and material

were made. LaSalle cannot step into the shoes of the owner in order to fall under the dictates of Clark and be subrogated to

the contractors paid by the owner.

Detroit Steel, 17 Ill.App.2d at 520, 151 N.E.2d at 139. We interpret the court’s statement as support for our conclusion that in

order to be subrogated to other lien claimants, the liens must be perfected liens. Our conclusion is furthered by the facts of the

case which indicate that the two claimants had unpaid liens at the time the mortgagee required they be paid from the loan

proceeds and by the court’s description of “known mechanics lien claimants.” Detroit Steel, 17 Ill.App.2d at 516, 520, 151

N.E.2d at 137, 139. In the instant case, LaSalle is attempting to be subrogated for “materialmen” who have been paid as the

$30,202 for Basic Development’s perfected lien. On remand, the remaining $1,557,563 in construction and development costs

for which the trial court subrogated LaSalle should be allocated proportionally between Edon and Eagle as the claimants with

perfected mechanic’s liens. Dixmoor Golf Club, Inc. v. Evans, 252 Ill.App. 468, 470-71 (1929) (only parties who joined ap-

peal are entitled to remedy; nonappealing parties remain bound by original order).

“In any suit to foreclose the lien hereof * * *, there shall be allowed and included as additional indebtedness in the de–

cree for sale or other judgment or decree, all expenditures and expenses which may be paid or incurred by or on behalf of

the Mortgagee for attorneys’ fees * * * as the Mortgagee may deemreasonably necessary * * * to prosecute such suit.”

846-47, 237 Ill.Dec. 683, 710 N.E.2d 106, 111-12 (1999), quoting People v. Reed, 177 Ill.2d 389, 393, 226 Ill.Dec. 801, 686

N.E.2d 584, 586 (1997). Questions of statutory interpretation, such as whether a court is authorized to grant attorney fees, is a

question of law this court reviews de novo. Acme Markets, 378 Ill.App.3d at 677-78, 317 Ill.Dec. 607, 882 N.E.2d at 182.

[11] Section 15-1512(b) authorizes the payment of attorney fees as provided for in the mortgage. Section 4.3 of the mortgage

925 N.E.2d 233

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398 Ill.App.3d 592, 925 N.E.2d 233, 338 Ill.Dec. 736

(Cite as: 398 Ill.App.3d 592, 925 N.E.2d 233, 338 Ill.Dec. 736)

prioritized above the mechanic’s liens. We find that the award of attorney fees is mandatory under the statute and therefore

we hold that the trial court erred in denying LaSalle’s request for payment of its attorney fees. On remand, the trial court

should determine LaSalle’s attorney fees and any amount found reasonable should be subtracted from the sale proceeds pur-

Affirmed in part and reversed in part. Cause remanded.

CARTER, J., concurring in part and dissenting in part:

I agree with two of the three conclusions reached by the majority in the present case. First, I agree with the majority that the

trial court properly allocated the proceeds of the sheriff’s sale pursuant to section 16 of the Mechanics Lien Act (770 ILCS

60/16 (West 2006)) using a proportionality approach. See Moulding–Brownell Corp. v. E.C. Delfosse Construction Co., 304

requires that LaSalle be allowed to recover the development expenses it paid. No lien existed as to those expenses because

LaSalle paid them off. Had LaSalle not done so, the providers of those services would have filed lien claims and Edon and

Eagle would be required to share their proceeds with those claimants. Thus, Edon and Eagle are receiving an unjust enrich-

ment. See Detroit Steel Products Co., 17 Ill.App.2d at 521, 151 N.E.2d at 139. Based on the case law cited, I would allow

LaSalle to recover the development expenses it paid as a priority over the mechanics lien claimants.

tice and create an absurdity to require a contractor to perfect a mechanic’s lien before being paid by a bank. It was not neces-

sary for the contractor to have perfected a mechanic‘s lien before payment. Again, every first-year law student recognizes that

a subrogee steps into the shoes of his subrogor. LaSalle, after payment, could have filed mechanic‘s liens as subrogee of

whatever contractors it paid.

On the other hand, the contractors had no such ability to protect themselves. What the contractors did know in agreeing to the

contract was that LaSalle had made a construction loan to the owners which would fund the project. Who should most suffer

the consequences of bad business decisions by LaSalle and the owners?

925 N.E.2d 233

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398 Ill.App.3d 592, 925 N.E.2d 233, 338 Ill.Dec. 736

(Cite as: 398 Ill.App.3d 592, 925 N.E.2d 233, 338 Ill.Dec. 736)

did what they were hired to do. It is hardly their fault that the project failed before completion.

In conclusion, for all these reasons and reasons set forth in Justice O‘Brien’s opinion, there is nothing inequitable about apply-

398 Ill.App.3d 592, 925 N.E.2d 233, 338 Ill.Dec. 736

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