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New York Consolidated Laws

N.Y. Lien Law § 72 (2026)

Diversion of trust funds

✓ current as of May 2026
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§ 72. Diversion of trust funds. 1. Any transaction by which any trust
asset is paid, transferred or applied for any purpose other than a
purpose of the trust as stated in subdivision one or subdivision two of
section seventy-one, before payment or discharge of all trust claims
with respect to the trust, is a diversion of trust assets, whether or
not there are trust claims in existence at the time of the transaction,
and if the diversion occurs by the voluntary act of the trustee or by
his consent such act or consent is a breach of trust.
  Nothing in this article affects the rights of a holder in due course
of a negotiable instrument or of a purchaser in good faith for value and
without notice that a transfer to him is a diversion of trust assets.
  2. Trust assets shall not be levied upon or subject to a restraining
notice issued pursuant to section fifty-two hundred twenty-two of the
civil practice law and rules as the individual property of the trustee.
  3. In any action or proceeding in which it is sought to apply trust
assets for a purpose other than a purpose of the trust as stated in
subdivision one or subdivision two of section seventy-one
  (a) it shall be the duty of the trustee, if he is a party, to defend
the trust against such application, and if he knows of the action or
proceeding but is not a party, to make application for intervention
therein for the purpose of defending the trust;
  (b) any beneficiary of the trust having a trust claim may intervene in
the action or proceeding to defend the trust against such application.
Notes of Decisions
Cited in 49 cases (7 in the last 5 years), 1972–2025 · leading case: LeChase Data/Telecom Servs. v. Goebert, 844 N.E.2d 771 (NY 2006).
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LeChase Data/Telecom Servs. v. Goebert, 844 N.E.2d 771 (NY 2006). · cites it 10× “We are asked to decide what kind of “notice” disqualifies a factor from exemption from Lien Law liability as a “purchaser in good faith for value and without notice” (Lien Law § 72 [1]). We conclude that actual knowledge of diversion of trust assets is not required, and that UCC…”
Env't Appraisers & Builders, LLC v. Imhof, 2016 NY Slip Op 6677 (N.Y. App. Div. 2016). “The defendants also failed to establish their prima facie entitlement to judgment as a matter of law on their third counterclaim alleging a diversion of trust fund assets under article 3-A of the Lien Law, since they presented no evidence that EAB used any article 3-A trust…”
Ippolito v. TJC Dev., LLC, 83 A.D.3d 57 (N.Y. App. Div. 2011). · cites it 4× “tion, the plaintiffs, as homeowners contracting for the performance of certain home improvements, were beneficiaries of the trust created by operation of Lien Law § 70, and they had standing to assert a cause of action pursuant to Lien Law article 3-A against TJC, or its…”
Mount Vernon City Sch. Dist. v. Nova Cas. Co., 968 N.E.2d 439 (NY 2012). · cites it 2× “v City of New York, 89 NY2d 147, 154 [1996]; see Lien Law § 72). This “prohibition against diversion of funds to purposes unrelated to a particular improvement was intended to eradicate the practice of ‘pyramiding,’ in which contractors use loans or payments advanced in the…”
Canron Corp. v. City of New York, 674 N.E.2d 1117 (NY 1996). · cites it 2× “equest that the funds be applied to its lease rent arrears, Northeast had waived its right of action against the City upon the balance due it under the crane repair agreement, and that this waiver constituted a diversion of a trust asset (the trust asset being the right of…”
LeChase Data/Telecom Servs., LLC v. Goebert, 2 Misc. 3d 195 (N.Y. Sup. Ct. 2003). · cites it 14× “at 263 [citations omitted]; see, Lien Law § 72 [1]). The plaintiff here seeks relief under the Lien Law for determinations that trust assets were unlawfully diverted, that the monies paid to Business Funding constitute trust funds, that these monies are held as trustees for the…”
Aspro Mech. Contracting, Inc. v. Fleet Bank, N.A., 805 N.E.2d 1037 (NY 2004). “The use of trust assets for a nontrust purpose—that is, a purpose outside the scope of the cost of improvement—is deemed “a diversion of trust assets, whether or not there are trust claims in existence at the time of the transaction, and if the diversion occurs by the voluntary…”
Burt Bldg. Material Corp. v. Silba (In Re Silba), 170 B.R. 195 (Bankr. E.D.N.Y. 1994). · cites it 2× “N.Y. Lien Law §§ 72 , 75 ( McKinney 1994 ).”
RLI Ins. v. New York State Dep't of Labor, 766 N.E.2d 934 (NY 2002). “Use of trust assets for any purpose other than the expenditures authorized in Lien Law § 71 before all trust claims have been paid or discharged constitutes an improper diversion of trust assets, regardless of the propriety of the trustee’s intentions (see, Lien Law § 72 [1];…”
Mike Bldg. & Contracting, Inc. v. Just Homes, LLC, 27 Misc. 3d 833 (N.Y. Sup. Ct. 2010). · cites it 2× “, 1 NY3d at 329 , quoting Lien Law § 72; see also Canron Corp., 89 NY2d at 154 , citing Lien Law § 72 [1] [“An improper diversion of the contractor’s trust assets occurs when any such trust asset is paid, transferred or applied for a nontrust purpose, that is, for any purpose…”
New York Life Ins. v. V.K., 184 Misc. 2d 727 (N.Y. City Civ. Ct. 1999). “(Domestic Relations Law § 172 [1]; Family Ct Act § 1035 [d]; Lien Law § 72 [3] [b].) The fact that the detailed regulations under Social Services Law § 473 omit reference to CPLR article 12 and guardians ad litem, while specifically listing other legal interventions similar to…”
L.D. Wenger Constr. Co. v. UnBuildIt, Inc., 73 A.D.3d 864 (N.Y. App. Div. 2010). “(hereinafter UnBuildIt), improperly diverted trust assets, in that it paid, transferred, or applied trust assets for nontrust purposes before paying the trust claim (see Lien Law § 72 [1]; see also Lien Law § 75 [4]; People v Rosano, 50 NY2d 1013, 1016 [1980]).”
Show all 49 citing cases →
— N.Y. Lien Law § 72(2) — 1 case
Ingalls Iron Works Co. v. Fehlhaber Corp., 337 F. Supp. 1085 (S.D.N.Y. 1972).
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