2023 New York Laws › LIE - Lien › Article 3-A - Definition and Enforcement of Trusts › 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.