§ 71-A — Further trust of funds received or receivable by owner under executory contract for the sale and improvement of real property

§ 71-a. Further trust of funds received or receivable by owner under\nexecutory contract for the sale and improvement of real property. 1. As\nused in this section,\n (a) A "contract of sale" is an executory contract for the sale of real\nproperty and the improvement thereof by the construction of a building\nthereon.\n (b) "Advances" include funds received by the owner and his rights of\naction for payment thereof.\n 2. (a) Advances made by or on behalf of a vendee of real property to\nthe owner under or pursuant to a contract of sale shall constitute\nassets of a trust, as defined in this section, of which the owner is\ntrustee, notwithstanding that such advances may also be assets of a\ntrust defined in section seventy of this chapter.\n (b) Such advances shall be held and applied by the owner for the\npayment of the cost of improvement. The trust claims defined in\nsubdivision three (a) of section seventy-one of this chapter shall have\npriority over trust claims which the vendee has under the further trust\nprovided in this section. Advances shall cease to be subject to the\nfurther trust provided in this section after they have been applied by\nthe owner for payment of the cost of improvement, provided that no part\nof the advances shall be applied or be deemed applied for payment of the\ncost of improvement until all trust assets, as defined in subdivisions\nfive (a) to five (f), inclusive, of section seventy of this chapter,\nwhich have been received by the owner from all other sources, have been\nexhausted.\n (c) Such advances, or any portion thereof remaining after application\nof such advances for payment of the cost of improvement, shall continue\nto be held in trust by the owner for the benefit of the vendee, until\nthe trust is terminated (i) by the owner's performance of the terms of\nthe contract of sale, or (ii) by a default of the vendee excusing the\nowner's performance of the terms of the contract of sale, or (iii) by\nrelease or discharge of the owner's liability to refund such advances to\nthe vendee.\n (d) Until the further trust is terminated as provided in this section,\nsuch advances shall not be applied by the owner for any purpose other\nthan payment of the cost of improvement and satisfaction of any\nliability of the owner to refund such advances, or any part thereof, to\nthe vendee. Upon termination of the said trust, the beneficial interest\nin such advances or any portion thereof remaining in the hands of the\nowner shall vest in the owner, provided that all trust claims applicable\nto such advances have been paid or discharged.\n (e) Any provision whereby the vendee waives the provisions of this\nsection, whether contained in the contract of sale or otherwise, shall\nbe absolutely void.\n (f) Subject to the provisions of this section, the rights and remedies\nwhich may be exercised by a holder of trust claims with respect to\nassets of a trust defined in section seventy of this chapter may be\nexercised, in the same manner and to the same extent, by the vendee with\nrespect to such advances.\n (g) The enforcement of the trust provided in this section shall not be\ndeemed to prohibit the vendee from seeking to enforce such additional or\nalternative remedies provided by law as shall afford the vendee complete\nrelief.\n 3. (a) The initial advance pursuant to a contract of sale which by its\nterms provides for or is incidental to a contract providing for the\nconstruction on the subject real property of residential condominium\nunit or any structure designed solely for residential occupancy of not\nmore than two families living separately, on property to be purchased\nshall, at the vendee's option, be deposited within five business days\nthereafter by the recipient in an interest bearing escrow account in a\nbank, trust company, savings bank, state or federal savings and loan\nassociation, located in this state. Such deposit, together with the\ninterest accumulated thereon, shall remain the property of the vendee\nexcept as otherwise provided herein. The recipient shall advise the\nvendee in writing of the name of the depository where the funds have\nbeen placed within ten business days after such deposit has been made.\n (b) In lieu of making the deposit of such moneys in an escrow account\nas provided in paragraph (a) of this subdivision, the recipient may post\nwith the vendee a bond or contract of indemnity, issued by a surety\ncompany licensed to execute such an instrument in this state,\nguaranteeing the return of the moneys which otherwise would be required\nto be deposited in such escrow account, in which case the recipient\nshall not be required to deposit such money in an escrow account. Said\nbond or contract of indemnity shall be delivered to the vendee within\nten business days after receipt of the initial advance.\n (c) At any time after making the deposit of such moneys in the escrow\naccount, the recipient may post with the vendee a bond or contract of\nindemnity issued by a surety company licensed to execute such an\ninstrument in this state guaranteeing the return of such moneys, in\nwhich case the recipient shall not be required to maintain the deposit\nof such moneys in such account.\n (d) Such advance shall be retained in the escrow account or such bond\nor contract of indemnity continued in effect until the trust is\nterminated (i) by the recipient's performance of the terms of the\ncontract of sale, or (ii) by default of the vendee excusing the\nrecipient's performance of the terms of the contract of sale, or (iii)\nby release or discharge of the recipient's liability to refund such\nadvance to the vendee, or (iv) upon transfer of title of the real\nproperty to the vendee.\n (e) Every contract of sale which by its terms provides for or is\nincidental to a contract providing for the construction on the subject\nreal property of a residential condominium unit or a structure designed\nsolely for the residential occupancy by not more than two families\nliving apart, shall contain a statement advising the vendee of the\nprovisions of this subdivision. Such statement shall be printed in bold\ntype which is at least two points larger than any other printing\ncontained thereon and shall read as follows:\n "YOU, AS THE PURCHASER OF THIS RESIDENCE, MAY REQUIRE THE RECIPIENT\n OR CONTRACTOR TO DEPOSIT THE INITIAL ADVANCE MADE BY YOU IN AN ESCROW\n ACCOUNT. IN LIEU OF SUCH DEPOSIT, THE RECIPIENT OR CONTRACTOR\n MAY POST A BOND OR CONTRACT OF INDEMNITY WITH YOU\n GUARANTEEING THE RETURN OF SUCH ADVANCE."\n 4. (a) Under a home improvement contract, payments received from an\nowner by a home improvement contractor prior to the substantial\ncompletion of work under the contract shall be deposited within five\nbusiness days thereafter by the recipient in an escrow account in a\nbank, trust company, savings bank, or state or federal savings and loan\nassociation, located in this state. No depository institution acting on\nthe instructions or otherwise dealing with a home improvement contractor\nshall be obliged to inquire into the validity or propriety of any\ndeposits to or withdrawals from any escrow account established by the\nhome improvement contractor in compliance with this subdivision or to\ninsure that any withdrawals from such account are applied for any\nspecific purpose or purposes by the home improvement contractor. Such\ndeposit or deposits shall remain the property of such owner except as\notherwise provided herein. Unless the home improvement contract\nspecifies the name of the depositary where the funds will be placed, no\nlater than ten business days after the deposit has been made, the\nrecipient shall advise the owner in writing of the name of the\ndepositary where the funds have been placed. The recipient shall not be\nrequired to keep in separate depositary accounts the funds of the\nseparate owners from whom payments have been received, provided his\nbooks of account shall clearly show the allocation to each owner of the\nfunds deposited in his general or special depositary account or\naccounts.\n (b) In lieu of making the deposit of such payment or payments in an\nescrow account as provided in paragraph (a) of this subdivision, the\nrecipient may post with the owner a bond or contract of indemnity,\nissued by a surety company licensed to execute such an instrument in\nthis state, or an irrevocable letter of credit issued by a bank, trust\ncompany, savings bank, or state or federal savings and loan institution\nlocated in this state, guaranteeing the return of the payments, or the\nproper application of the payments to the purposes of the contract,\nwhich otherwise would be required to be deposited in such escrow\naccount, in which case the recipient shall not be required to deposit\nsuch payments in an escrow account. Said bond or contract of indemnity\nor irrevocable letter of credit shall be delivered to the owner within\nten business days after receipt of the payment.\n (c) At any time after making the deposit of such payment or payments\nin the escrow account, the recipient may post with the owner a bond or\ncontract of indemnity issued by a surety company licensed to execute\nsuch an instrument in this state, or an irrevocable letter of credit\nissued by a bank, trust company, savings bank, or state or federal\nsavings and loan institution located in this state, guaranteeing the\nreturn or proper application of such payment to the purposes of the\ncontract, in which case the recipient shall not be required to maintain\nthe deposit of such payment in such account.\n (d) Such deposit or deposits shall remain the property of the owner or\nsuch bond or contract of indemnity or irrevocable letter of credit\ncontinued in effect until (i) the proper payment, transfer or\napplication of such deposits by the contractor to the purposes of the\nhome improvement contract under the schedule of payments provided\ntherein; or (ii) the default or breach of the owner excusing the\nrecipient's performance of the terms of the home improvement contract,\nbut only to the extent of any reasonable liquidated damage amount as\ndefined in section 2-718 of the uniform commercial code and set forth in\nthe contract, and only after seven days prior written notice to the\nowner; or (iii) substantial performance of the contract.\n (e) The recipient shall not withdraw deposits from the escrow account\nin excess at any time of the total amount shown in the schedule of\npayments in the home improvement contract. The amount of any such\nprogress payments shall bear a reasonable relationship to the amount of\nwork to be performed, materials purchased, or expenses for which the\ncontractor would be obligated.\n (f) If the home improvement contract provides that the home\nimprovement contractor will be paid on a specified hourly or time basis\nfor work that has been performed or charges for materials that have been\nsupplied prior to the time that payment is due, this subdivision shall\nnot apply to such payments for such work or materials.\n (g) Failure to place customer deposits in escrow, except as provided\nherein, shall constitute a violation of this section.\n