N.Y. Lien Law § 73: Affirmative defense in action against transferee of trust assets or to charge trustee in certain cases; "Notice of Lending

§ 73. Affirmative defense in action against transferee of trust assets

or to charge trustee in certain cases; "Notice of Lending." 1. In any

action against a person to whom trust assets have been transferred, to

recover assets diverted from the trust or to recover damages for the

diversion, a transferee named in a "Notice of Lending" filed as provided

in subdivision three of this section shall be entitled to show by way of

defense that the transfer was made as security for or in consideration

of or in repayment of advances made to or on behalf of the trustee in

accordance with such notice of lending and that prior to the making of

such advances the transferee procured from the trustee the written

agreement of the trustee that he will receive the advances and will hold

the right to receive such advances as trust funds to be first applied to

the payment of trust claims as defined in section seventy-one of this

chapter, and that he will apply the same to such payments only, before

using any part of such advances for any other purpose. Subject to

subdivision four of this section, if such defense is established, the

transferee shall be entitled to a credit for the amount of the advances

with respect to which it is so established, to the extent that such

amount does not exceed the maximum amount specified in the notice of

lending filed as provided in subdivision three.

2. In any action in which it is sought to charge a trustee personally

with liability by reason of a diversion of trust assets, the trustee

shall be entitled to show by way of defense that the transfer

constituting the diversion was made to a transferee named in a "Notice

of Lending" filed as provided in subdivision three and that the transfer

was made as security for or in consideration of or in repayment of

advances made to him as trustee or on his behalf as trustee in

accordance with such notice of lending, and that such advances were

actually applied for a purpose of the trust as stated in subdivision one

or subdivision two of section seventy-one of this chapter. Subject to

subdivision four of this section, if such defense is established, the

trustee shall be entitled to a credit against any personal liability by

reason of such transfer, for the amount of the advances with respect to

which it is established, to the extent that such amount does not exceed

the maximum amount specified in the notice filed as provided in

subdivision three.

3. (a) If funds are advanced to or on behalf of a trustee, for the

purposes of the trust, either the trustee or the person advancing the

funds may file a "Notice of Lending" as provided in this subdivision. In

the case of advances to an owner or to a contractor or subcontractor for

one or more projects for the improvement of real property including a

home improvement, the notice shall be filed in the office of the county

clerk of each county where the real property improved or to be improved

to which the notice relates is situated. Such clerk shall enter the

facts relating to the notice in the "lien docket" or in another book

provided by him for such purpose. Each such notice shall be indexed by

the name of the trustee to whom or on whose behalf the advances are

made. In the case of advances to a contractor or subcontractor for one

or more projects involving a public improvement, the notice shall be

filed with the head of each department or bureau having charge of

construction of an improvement to which the notice relates and with the

financial officer of each public corporation or other officer or person

charged with the custody and disbursement of the corporate funds

applicable to the contract for each such public improvement.

(b) A notice filed pursuant to this section is effective for the

purposes of this section with respect to advances made on the day of

filing or subsequently, or made not more than five days before the date

of filing. The notice must contain: (1) a statement of the name and

address of the person making the advances, (2) a statement of the name

and address of the person to whom or on whose behalf they are made, and

whether he is owner, contractor or subcontractor, (3) in the case of

advances relating to one specific project for the improvement of real

property including a home improvement or one specific public

improvement, a description, sufficient for identification, of the

improvement and of the real property involved for which the advances are

made, and in the case of a notice of lending relating to several or

undetermined projects for the improvement of real property including a

home improvement or for public improvements, a statement of each county

wherein the real property is or may be situated, (4) the date of any

advance made on or before the date of filing for which the notice is

intended to be effective, (5) in the case of a notice of lending

relating to several or undetermined projects, the date the notice will

terminate, which termination date shall not be more than two years after

the date the notice is filed, and (6) the maximum balance of advances

outstanding to be permitted by the lender pursuant to the notice. If

real property is required to be specifically identified hereunder, the

identification shall be sufficient if it includes the name of the record

owner and the location of the real estate by street and number and town

or city or, if the real estate is in the city of New York, by county,

except that if the real estate is in the city of New York or counties of

Nassau or Onondaga, where the block system of recording or registering

and indexing conveyances is in use, the notice must also specify the

block in which the real estate is situated.

(c) A "Notice of Lending" may be continued in effect for advances made

beyond the stated termination date by filing within sixty days prior to

the termination date a subsequent notice entitled "Second Notice of

Lending" or "Third Notice of Lending", which identifies the prior notice

to which it relates and otherwise conforms to the requirements of

paragraph (b) of subdivision three of this section. The term "Notice of

Lending" as used in this section includes any amendments but if any

amendment increases the maximum balance of advances outstanding to be

permitted by the lender, it is effective as to the increased amount only

with respect to advances made not more than five days before the date of

filing the amended notice or thereafter.

(d) A "Notice of Assignment" meeting the requirements of subdivision

two of section fifteen of this chapter and filed pursuant to subdivision

one of said section shall be deemed for all purposes a "Notice of

Lending" complying with the requirements of this section.

4. Notwithstanding that the transferee, or the trustee, establishes a

defense as provided in subdivision one or subdivision two of this

section, he shall be allowed no credit by reason of such defense if it

is shown that a written demand by a trust beneficiary for a verified

statement of the amount of advances actually made to the trustee was

served personally or by registered or certified mail on the transferee,

or the trustee as the case may be, and that he failed to comply

therewith within ten days after receipt of the demand, provided, that if

either the transferee or the trustee complies with a demand so served on

him, such compliance shall be sufficient as to the other.

5. Notwithstanding any provision of this chapter or of any other law

to the contrary, moneys received pursuant to a notice of lending by an

owner, contractor or subcontractor shall be deemed to be trust assets.