Reviewed September 7, 2026.
A construction business can reduce Article 3-A disputes by building the New York Lien Law’s recordkeeping requirements into its regular accounting process. The objective is to show what each project trust owns, what it owes and how its assets have been used.
1. Set up the trust ledger when the project begins
Identify the contract, improvement and trustee under Lien Law § 70. Trust assets can include rights to payment, not just deposits already received. Do not wait for a subcontractor to complain before creating the records.
Section 75 permits different project trusts to share a bank account if the books clearly allocate deposits and withdrawals to each trust. A separate project account can be helpful, but does not replace a complete ledger and is not a universal statutory requirement.
2. Record more than cash in and cash out
The statutory records include trust assets receivable, trust accounts payable, funds received, trust payments and applicable notice-of-lending transfers. Keep the required names, addresses, amounts, dates, transaction details, payment methods and trust purposes. Maintain supporting contracts, changes, invoices, payroll, banking records and proof of payments.
A bank statement alone will not show why an expense was a proper trust payment or what obligations remain unpaid. Reconcile it with project-level receivable and payable schedules.
3. Review the purpose before making a transfer
Use § 71 to identify permitted trust expenses. Qualifying project labor, materials, taxes, insurance and bond premiums may be included. Under § 72, applying trust assets to another purpose before the trust’s claims are paid or discharged can constitute diversion.
If a project receives $100,000 and pays $75,000 in proper expenses, the remaining $25,000 is not automatically available as profit. Review unpaid and potential trust obligations and trust termination before moving it to another project or distributing it.
4. Assign responsibility for records requests
An eligible beneficiary may request inspection and copying or a verified statement under § 76. The statute generally requires a claim to have been payable for 30 days and sets a ten-day response period, with requests ordinarily no more often than monthly. Have a process for routing properly served requests to the responsible accounting staff and counsel.
Keep liability statements precise
Failure to maintain required records is presumptive evidence of diversion under § 75, not an automatic final judgment. Civil relief may include accounting and recovery of diverted assets; individuals participating in a diversion can face personal liability. Criminal consequences under § 79-a, punitive damages and attorney-fee awards require separate legal analysis.
Do not assume every trust judgment is nondischargeable in an individual’s bankruptcy. Bullock v. BankChampaign, N.A., 569 U.S. 267 (2013) requires knowledge or gross recklessness for fiduciary defalcation under the relevant Bankruptcy Code exception. Bankruptcy and judgment-enforcement procedures have their own requirements.
Beneficiaries should also review the short trust-enforcement limitation period and representative-action procedure in § 77. Keeping records or requesting them does not automatically extend a claim deadline.
Kushnick Pallaci PLLC assists with Article 3-A trust accounting and diversion disputes. Contact managing member Vincent T. Pallaci at 631-752-7100 or vtp@kushnicklaw.com.
Attorney Advertising. General information, not legal advice.
No comments:
Post a Comment