Mortgage obtained to acquire property and air rights is not subject to Lien Law Article 3A

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

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