In Matter of Mayrich Constr. Co. v. Oliver LLC, the Appellate Division was confronted with a trust fund diversion claim against a borrower of mortgage funds.  The Court found that the mortgages at issue were obtained for the purpose of acquiring real property and rights noting that “neither [mortgage] contains an express promise…to improve real property.”  Citing to Lien Law Section 70(1), the Court held that no funds were received by the borrower “under or in connection with a contract for an improvement of real property” and, therefore, found that Lien Law Article 3-A was not applicable.  The Court also noted that there mere recording of a mortgage during the statutory period did not render the proceeds trust funds nor did the presence of a Lien Law Section 13 covenant in the mortgage.

Vincent T. Pallaci is a partner at the New York law firm of Kushnick Pallaci, PLLC.  His practice concentrates primarily in the area of construction law.  He can be reached at vtp@kushnicklaw.com or (631) 752-7100.  You can also visit our firm site at www.nyconstructionlaw.com