The typical first step for an unpaid contractor, subcontractor, supplier or material man is to file a mechanic's lien. But there is another step too: serving a demand for a verified statement, or a demand for inspection of books and records, under Lien Law Section 76. Lien Law Section 76 allows "beneficiaries" of the Lien Law trust fund created under Article 3A of the Lien Law to demand that the "trustee" account for the monies it has received on the project. The trustee must show each penny that came in to the trust and how each penny was spent. The trustee must, by line item, show who was paid from the trust, how much they were paid and hat the were paid for (either labor, materials, insurance, etc.). The diversion of trust funds is illegal and can expose the trustee to additional liability to the beneficiaries. Lien Law Section 75(4) provides that if the trustee does not maintain proper books and records then a diversion is presumed. Lien Law Section 76 can be a powerful tool for beneficiaries to find out if there is a lien fund remaining to attach a lien to and can also provide an alternative method of liability, including personal liability of trustees, that may provide extra leverage in negotiations to finalize payment.
Vincent T. Pallaci is partner in the New York law firm of Kushnick Pallaci, PLLC. With offices in Buffalo and Long Island, Kushnick Pallaci provides legal services to the construction industry across the State of New York.
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