New York Construction Collections: Protect Payment Rights Before a Debt Becomes a Lawsuit

Reviewed September 7, 2026.

Collecting construction receivables starts with the contract and continues throughout the project. A payment demand may help resolve a dispute, but it does not preserve every lien, bond or statutory deadline.

Build a usable payment record

Identify the contracting entities, scope, price, billing requirements, change-order procedure and payment dates. Negotiate clear provisions addressing interest, collection costs and attorney’s fees where appropriate; do not assume those amounts are recoverable without an applicable agreement or statute. Keep signed contracts, delivery tickets, approved changes, daily reports, invoices and proof of submission together. Review aging receivables regularly and document the reason for each withheld payment.

Check prompt-payment protections

New York’s private construction prompt-payment law has a defined scope and exclusions. For covered contracts, General Business Law § 756-a generally requires invoice approval or written disapproval within 12 business days after receipt of the invoice and required documentation. Payment timing, lawful withholding and lower-tier payment rules require separate analysis. Review notice requirements before suspending work.

Preserve parallel remedies

A private mechanic’s lien generally has a four-month filing period for qualifying single-family dwellings and an eight-month period for other private improvements, subject to statutory exceptions and special retainage rules under Lien Law § 10. Public-improvement liens attach to project funds and follow different filing and service rules under § 12. Filing does not finish the process: calendar lien duration, extension and enforcement requirements.

Obtain any payment bond promptly. Eligible claimant tiers, notices and lawsuit deadlines depend on the bond and applicable law. Where project funds may have been diverted, evaluate Article 3-A trust remedies. Under § 77, subcontractors and material suppliers have a limitation rule tied to the later of project completion or final payment becoming due. Nonpayment alone does not establish diversion, personal liability or entitlement to attorney’s fees.

Use negotiations, mediation, arbitration or litigation as appropriate while preserving these separate rights. An early assessment of documentation, defenses, collectability and cost helps select a practical recovery strategy.

Kushnick Pallaci PLLC assists clients throughout New York with construction debt collection. Contact 631-752-7100 or vtp@kushnicklaw.com.

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The Article 3-A Limitations Period: Project Completion and Final Payment

Reviewed September 7, 2026.

The deadline for a construction trust action is not always measured from the claimant’s last day on the job. Lien Law § 77(2) generally uses one year after completion of the improvement. For a subcontractor or material supplier, it also addresses one year after final payment under the claimant’s contract became due, whichever is later. The statute contains an exception concerning a trustee’s final-account settlement action.

What Precast Restoration decided

In Precast Restoration Services v. Global Precast, Inc., 2011 NY Slip Op 32495(U), the moving parties showed that more than a year had passed after payment became due but did not establish when the entire improvement was completed. The court rejected the limitations ground against the corporation.

The individuals did not both remain in the case: the court dismissed the claims against Michael Cannone because the unrebutted record showed he was not an owner or officer during the relevant period, and against Vito Cannone because the allegations did not establish the required basis for personal jurisdiction through his participation in the alleged diversion. The earlier article omitted those separate outcomes.

Identify every relevant date and defendant

Collect the project completion records, contract payment terms, invoices and procedural history. Completion of one subcontract is not necessarily completion of the entire improvement. A corporate title alone does not prove participation or personal jurisdiction.

Do not postpone a claim based on an uncertain later date. Lien deadlines, contract claims and Article 3-A claims have different rules.

Kushnick Pallaci PLLC assists clients throughout New York with Article 3-A trust fund litigation. Contact 631-752-7100 or vtp@kushnicklaw.com.

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Homeowner Trust Diversion Claims: Standing, Officers and Prior Arbitration

Reviewed September 7, 2026.

New York’s construction trust law can protect homeowners who advance money for home improvement work. That protection should not be described as an automatic rule that every owner on every commercial or public project is a trust beneficiary.

What Ippolito decided

In Ippolito v. TJC Development, LLC, 83 A.D.3d 57 (2011), the Second Department recognized homeowners’ standing based on the home improvement trust protections in Lien Law § 71-a and the return-of-advance-payment provision in § 71(2)(f). Claims against individual officers alleged to have participated in diversion survived dismissal.

The outcome had an important limit: the claim against the contractor corporation was barred because it could and should have been raised in the earlier arbitration. The ruling did not finally establish the individuals’ liability. Prior litigation or arbitration can therefore affect which trust claims remain available.

Advance payments and potential defenses

Section 71-a regulates qualifying home improvement advance payments, including escrow and permitted application of funds. Owner breach is not a blanket right to keep every advance: the statute includes limits concerning reasonable liquidated damages and prior written notice. Substantial performance or proper application of funds also must be evaluated under the actual statute and facts; they do not erase other beneficiaries’ rights or earlier diversion automatically.

An officer is not liable merely because of a corporate title. Participation in the alleged diversion and the applicable proof matter. Nor is every diversion judgment automatically immune from bankruptcy discharge. Bullock v. BankChampaign, N.A., 569 U.S. 267 (2013) requires a culpable mental state for fiduciary defalcation under the federal bankruptcy provision.

Review the contract, payment history, use of funds, prior proceedings and applicable limitation period before selecting a remedy.

Kushnick Pallaci PLLC assists clients throughout New York with construction trust fund diversion claims. Contact 631-752-7100 or vtp@kushnicklaw.com.

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Direct Payments to Lower-Tier Contractors and Trust Fund Obligations

Reviewed September 7, 2026.

Paying a subcontractor’s vendors directly is not necessarily a trust diversion. The recipients, amounts, purpose and treatment under the contract must still be examined.

In Metro Foundation Contractors, Inc. v. Marco Martelli Associates, Inc., 78 A.D.3d 594 (2010), the First Department explained that payments to the claimant’s subcontractors and vendors could be proper trust payments because they were beneficiaries, assuming the correct amounts were paid. Factual disputes remained about performance and the payments, so the claimant was not entitled to summary judgment.

The Prompt Payment Act did not turn disputed part performance into automatic entitlement to judgment. The decision did not authorize a contractor to invent offsets, overpay a vendor or ignore notice and payment obligations.

Document the payment and credit

Identify the beneficiary and project debt, obtain invoices and payment proof, and document any agreement authorizing direct or joint payment. Reconcile the amount against the subcontract balance and obtain appropriately limited acknowledgments or releases. Avoid double-counting an expense as both a payment and a separate backcharge.

Lien Law § 71 addresses trust purposes. Contract terms and the applicable Prompt Payment Act requirements must be considered separately, including timely approval or disapproval where required.

Kushnick Pallaci PLLC assists clients throughout New York with construction trust fund disputes. Contact 631-752-7100 or vtp@kushnicklaw.com.

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Drafting Attorney’s Fee Provisions in Construction Contracts

Reviewed September 7, 2026.

If a construction contract is intended to shift legal fees, say so clearly and review the consequences before signing. A general indemnification provision may address third-party claims without providing fees for a dispute between the owner, contractor or subcontractor.

Sage Systems, Inc. v. Liss, 39 NY3d 27 (2022), confirms that courts require clear contractual intent to depart from the usual rule that each party pays its own legal fees.

Terms worth addressing

• Which disputes qualify: unpaid invoices, breach claims, arbitration, appeals and judgment enforcement.
• Whether recovery is mutual and how the agreement defines the party entitled to fees.
• How partial success, settlement and counterclaims affect recovery.
• Whether the clause is consistent with consumer protections and other applicable law.

Statutory fee remedies must be checked individually. A construction dispute or late payment does not itself create an automatic right to attorney's fees under the Prompt Payment Act or the Lien Law. The contract, remedy pursued and supporting facts matter. Avoid treating a fee provision as a promise that litigation will cost nothing.

Kushnick Pallaci PLLC assists clients throughout New York with construction contract drafting and review. Contact 631-752-7100 or vtp@kushnicklaw.com.

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Using Lien Law § 8 to Investigate an Unpaid Construction Balance

Reviewed September 7, 2026.

Lien Law § 8 lets a qualifying subcontractor, laborer or material supplier demand in writing the terms of the owner’s contract and the amount due or to become due under it. This can help identify the payment chain and investigate whether a lien fund exists.

Nonresponse is not an automatic guarantee

The statute addresses an owner’s refusal or neglect to provide the statement within thirty days, or a false statement. Its liability provision has additional conditions, including an unpaid claim, a judgment against the contractor or subcontractor and execution returned wholly or partly unsatisfied. Recovery concerns loss caused by the refusal, neglect or false statement. The statute also addresses liens for qualifying work or materials furnished after the demand.

The earlier article overstated the rule by suggesting that failure to answer alone made the owner liable for the entire subcontract balance.

Use the response as evidence to investigate

Compare the statement with the contract, changes, retainage, payment applications and records. Owner payment does not alone prove diversion, and owner nonpayment does not alone prove a valid mechanic’s lien. Each theory has further requirements.

A qualifying beneficiary may separately request trust records under § 76. Neither demand replaces timely filing, service or preservation of a lien, and neither automatically stops a limitation period.

Kushnick Pallaci PLLC assists clients throughout New York with New York construction debt collection. Contact 631-752-7100 or vtp@kushnicklaw.com.

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Maintaining Proper Lien Law Trust Records to Avoid Liability

Reviewed September 7, 2026.

New York construction trust obligations require more than keeping enough money in a bank account. A trustee needs records showing the source of trust assets, obligations to beneficiaries and the purpose of each expenditure.

Identify the trust and its assets

Lien Law § 70 defines separate owner, contractor and subcontractor trusts. Assets can include both funds received and rights to payment. A trust can arise before any beneficiary’s claim presently exists. Identify the particular contract, improvement, trustee and assets instead of assuming every unpaid invoice proves diversion.

Separate project records; bank accounts may be shared

Section 75 expressly permits funds of different trusts in one bank account if the records clearly allocate deposits and withdrawals to each trust. It does not impose a universal requirement for a specially titled trust account or a separate bank account for every job. A separate account may be a useful control, but it does not replace the statutory books and records.

The records must cover more than a bank balance. Maintain the required information for:

• Trust assets receivable: the person owing payment, identifying transaction, amount and due date.
• Trust accounts payable: beneficiaries, obligations, amounts and dates due.
• Funds received: source, date, amount, form of receipt and deposit information.
• Payments made: recipient, date, amount, method, trust purpose and relevant contract or work details.
• Applicable lending transactions: advances, transfers, assignments and the information required for a notice-of-lending arrangement.

Keep supporting contracts, invoices, payroll records, payment applications, bank records, checks and allocation schedules. Reconcile each project ledger regularly.

Use assets for that trust’s purposes

Section 71 defines permitted expenditures and beneficiaries; qualifying labor, materials and certain project taxes, insurance and bond costs may be included. Using one project’s trust assets for another job or taking profit before the trust obligations are satisfied can create diversion liability under § 72.

For example, if Project X receives $100,000 and pays $75,000 in proper trust expenses, the $25,000 bank balance is not automatically profit. Determine outstanding and potential trust obligations and whether the trust has terminated before releasing remaining assets. If a Project X beneficiary remains unpaid, using that balance to purchase Project Z materials may constitute diversion.

Respond to beneficiary requests

Under § 76, an eligible beneficiary may choose inspection and copying of trust records or a verified statement. The statute generally allows a request after a claim has been payable for 30 days, no more often than monthly, and provides a ten-day response period. Proper identification and service are required. A summary saying the owner has not paid does not replace the required records.

Understand the consequences and deadlines

Missing required records creates presumptive evidence of diversion under § 75; it is not an automatic final judgment. Civil remedies can include accounting, recovery of diverted assets and damages. Individuals who participate in a diversion can face personal liability, but corporate status alone does not establish it. Criminal liability under § 79-a has its own requirements and exceptions. Punitive damages and attorney-fee awards are not automatic.

Bankruptcy treatment also requires separate analysis. In Bullock v. BankChampaign, N.A., 569 U.S. 267 (2013), the Supreme Court required a culpable mental state for fiduciary defalcation under 11 U.S.C. § 523(a)(4), including knowledge or gross recklessness. It is inaccurate to say every Article 3-A judgment necessarily survives an individual’s bankruptcy.

Section 77 generally limits a trust-enforcement action to one year after completion of the improvement, with a later final-payment-due trigger available to subcontractors and materialmen as stated in the statute. It also provides representative-action requirements and an exception for a trustee’s final-accounting action. Obtain a claim-specific deadline analysis; a records request does not automatically extend the time to sue.

Kushnick Pallaci PLLC assists with construction trust accounting disputes and diversion claims and construction payment litigation. Vincent T. Pallaci is the firm’s managing member. Call 631-752-7100, email vtp@kushnicklaw.com or consult the current Long Island and New York City office information.

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