A Notice of Assignment (NOA) is a formal legal document that must be filed under New York state law.
For Projects in New York State:
A Notice of Assignment (NOA) is a formal legal document that must be filed under state law. In the context of construction financing, it notifies all relevant parties that a General Contractor or Subcontractor has assigned their rights to receive payment for specific work or invoices to a third party, such as Constrafor.
In New York, a NOA must be filed in the county where the project is located. Please note that filings may be labeled differently depending on the county.
Why is a Notice of Assignment Required in New York?
In New York, the NOA plays a crucial role in compliance with state regulations regarding public projects.
- Compliance with NY Lien Law: Constrafor files the NOA to ensure full compliance with New York Lien Law, specifically Article 2, §15 and Article 3-A §73. This filing safeguards Constrafor, General Contractors, Owners, and Subcontractors from potential costly claims related to the diversion of trust funds.
- Validity of Assignment (Article 2, §15): This section mandates that for an assignment of money due (or to become due) on a construction project to be valid for any purpose (and not improperly reduce a subcontractor's lien), a Notice of Assignment must be filed in the county clerk's office where the property is located. This makes the assignment legally effective and publicly recorded.
- Construction Trust Funds (Article 3-A): New York law designates funds received for construction projects as "trust funds." General Contractors and owners have a fiduciary duty to manage these funds responsibly, primarily for the benefit of lower-tier contractors, suppliers, and workers. Misusing these funds is considered "diversion".
- Affirmative Defense Against Diversion Claims (Article 3-A, §73): This section provides a crucial protection. It states that a properly filed NOA serves as an affirmative defense against claims of trust fund diversion. If sued, the transferee named in the NOA (Constrafor) can show the payment received was for advances made according to the NOA and a related agreement with the trustee (the entity receiving the advance), thereby potentially negating the diversion claim regarding those specific funds.
Why is it Filed in the Mechanics Lien Section?
Here is where it can get a bit confusing:
Although a NOA is not a mechanics lien, the law (specifically New York Lien Law, Article 2, Section 15), requires that the NOA be filed in the same section of county records where mechanics liens are kept. So if you see the NOA labeled or indexed with mechanics liens or building loan assignments, please do not worry, that’s just how the county handles it. It doesn’t mean a lien has been filed against the project or property.
Below we provide examples illustrating how the NOA filings might appear in different counties:
Why Does Constrafor Require a Notice of Assignment for Constrafor's Early Pay Program?
Constrafor requires an NOA when Subcontractors participate in the Early Pay Program (EPP) in New York for several key reasons:
- Legal Compliance: To comply strictly with New York Lien Law requirements (Article 2 §15 & Article 3-A §73) regarding assignments and trust funds.
- Direct Payment: To legally ensure that payments for the invoices purchased by Constrafor are directed to Constrafor, not the Subcontractor.
- Risk Mitigation: To utilize the affirmative defense provided by §73 against potential claims related to misallocated or diverted trust funds, protecting all parties.
- Transparency & Protection: To document the transfer of financial obligations clearly, protecting Constrafor, the Subcontractor, the General Contractor, and the Owner by ensuring a legally compliant transaction process.
Key Takeaways
- Definition: In New York, a Notice of Assignment is a legal document that assigns payment rights from a Subcontractor to a third party, such as Constrafor.
- Legal Compliance: In New York, NOAs help comply with trust fund laws and protect against financial mismanagement claims.
- Filing Variation: County Clerks may index NOAs differently.
- Constrafor’s Requirement: NOAs are required for Subcontractors in New York State using the Early Pay Program to ensure proper payment handling and legal compliance.
- Benefits: Filing an NOA ensures transparency, reduces legal risks, and protects all parties in construction financing.
Disclaimer: This information is for informational purposes only and does not constitute legal advice. Consult with legal counsel for specific interpretations or advice regarding New York Lien Law or county filing procedures.