Monday, January 24, 2011

Responding to the Demand for a Verified Statement

Pursuant to Lien Law Section 76, a beneficiary of the lien trust funds (Article 3A of the Lien Law) on a construction project may demand that the trustee provide a verified statement, in writing, setting forth the items contained in the books and records of the trust.  The Section 76 demand is a dangerous and powerful tool that, if used properly, can significantly increase the strength of a beneficiary's claim and, if not properly responded to, can doom a trustee. 

In general, the response to the Lien Law Section 76 demand should contain all of the information required to be kept by the trustee pursuant to Lien Law Section 75.  A Section Lien Law Section 76 verified statement should contain, at a minimum:  1) the dates and amounts of funds received by the trustee; 2) the dates and amounts of disbursements made by the trustee; 3) the names of the payees receiving funds from the trust (including, if applicable, the address of the payee and a short description of what the payee did on the project); 4) the total amount of the trust funds still being held in escrow by the trustee; and 5) the name(s) of the person(s) that authorized the payment to of trust funds to the payee.  The statement should then be verified by the trustee and served upon the beneficiary.  Needless to say, it is highly advisable to consult with a construction attorney before responding to a demand for a verified statement under Lien Law Section 76.  A verified statement is a sworn statement and can later be used against the trustee in a trust diversion lawsuit.  An attorney likely will not need to spend much time helping you with the Section 76 statement but it is well worth the small added costs to make sure that the statement is proper and accurate. Keep in mind that trust diversions are crimes, if there is a problem with your records, speak to an attorney immediately before providing the Section 76 response.

Vincent T. Pallaci is a partner at the New York law firm of Kushnick Pallaci, PLLC where his practice focuses primarily on the area of construction law.  He can be reached at (631) 752-7100 or vtp@kushnicklaw.com

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