If a contractor has taken draw funds and stopped work, the situation is time-sensitive in ways that are not obvious. The instinct is to keep calling and wait. Every week of waiting reduces your recovery options, increases carrying cost, and lets the property deteriorate.
This is a sequence, not a list. Work it in order.
First 48 hours
Stop all further disbursements immediately. If a draw request is pending with your lender, contact them in writing today and instruct them to hold. If you are self-funding, halt everything. Contractors who abandon projects frequently submit one final request before disappearing entirely.
Secure the property. Change the locks. If the contractor has a key or lockbox code, assume it is compromised. Walk the site and photograph everything — completed work, incomplete work, materials on site, materials that should be on site and are not. Timestamp the photographs.
Verify what was actually purchased. Materials paid for under the draw should be on site or delivered. Call the suppliers directly and confirm whether orders were placed and whether they were paid. Suppliers will usually tell you. This determines whether you are dealing with abandonment or with funds diverted before any work was contemplated.
Send written notice to the contractor. Email and certified mail. State the facts: funds disbursed, work performed, work not performed, and a specific deadline to return to the site. Keep it factual. This document matters later regardless of what path you take.
Establishing your actual position
Before you can decide anything, you need three numbers.
Value of work actually completed. Have an independent party — a construction consultant, an estimator, or another licensed GC with no interest in taking the job — walk the site and value what exists. Do not use your own estimate. You will need a defensible third-party figure.
Total funds disbursed. Every payment, with date, amount, method, and what it was designated for.
Cost to complete. What it will now take to finish, priced by a replacement contractor. This is almost always higher than the remaining contract balance, because a partially completed project carries demolition of defective work, remobilization costs, and a contractor premium for taking over someone else's job.
The gap between disbursed funds and completed value is your exposure. The gap between remaining budget and cost to complete is your additional capital requirement. Both need to be known before you make decisions, because together they determine whether this project is still viable.
Lien exposure
This is the risk investors most frequently miss, and it can exceed the stolen funds.
If the contractor collected draws and did not pay subcontractors or material suppliers, those parties retain lien rights against your property. They performed work or delivered materials. They were not paid. Their claim is against the real estate, not against the contractor who took your money.
You can pay for the same work twice. This happens regularly.
Act on it now. Contact every subcontractor and supplier you can identify and ask directly whether they have been paid. Check the county recorder for filed liens. Understand your state's lien deadline — the window for filing runs from last work or last delivery, and it is typically between 60 and 120 days depending on jurisdiction. If you are inside that window, you have unresolved exposure even if nothing has been filed yet.
Where you are making payments going forward, pay subcontractors and suppliers directly, or require lien waivers against every disbursement. Conditional waiver on progress payments, unconditional waiver on final.
Recovery paths
Bond claim. If the contractor was bonded, file immediately. Bonds carry strict notice deadlines. This is the cleanest recovery path and the one most likely to produce actual funds.
License board complaint. File with your state contractor licensing board. Some states operate recovery funds for consumers harmed by licensed contractors. The process is slow and caps are usually low, but the filing also creates a record and can generate leverage if the contractor wants to preserve their license.
Criminal referral. In most jurisdictions, accepting payment for work with no intent to perform is theft or fraud, not merely breach of contract. Whether prosecutors take it depends on the amount, the documentation, and whether there are other victims. There usually are. File a report — it costs you nothing and multiple complaints change the calculus for prosecutors.
Civil suit. Realistic only if the contractor has assets or income to attach. A judgment against someone who is judgment-proof is an expensive piece of paper. Have counsel run an asset check before you spend on litigation.
Insurance. Review your builder's risk policy. Coverage for contractor theft is uncommon but not unheard of. Worth the phone call.
Be realistic about the aggregate probability. Full recovery from an absconding contractor is the exception. Pursue the paths that are cheap and fast — bond claim, license complaint, criminal referral — and be clear-eyed before spending significant money on litigation.
Restarting the project
You will pay a premium. Contractors are cautious about taking over abandoned work, and they price that caution in.
Get the scope re-estimated from current condition, not from the original plans. The original budget is now irrelevant. What matters is what it costs from here.
Have the existing work inspected before anyone builds on it. Work performed by a contractor who was preparing to abandon the job is frequently defective, and defects that are now buried behind finished surfaces are far more expensive to correct later. Pay for the inspection.
Restructure how you pay. Shorter draw intervals tied to verified completion. Inspection before every disbursement. Direct payment to suppliers where possible. Lien waivers required against every payment without exception.
Re-underwrite the entire deal. The project has changed materially — more capital in, longer timeline, higher holding costs. Run the numbers from the current position. The honest answer may be that completing is no longer the best outcome. Selling as-is, or wholesaling the property in its current condition, is sometimes the correct decision and is easier to make early than after another six months of carrying cost.
What would have prevented it
Every element of contractor fraud is visible in advance to someone who checks.
License and insurance verified at the source. Not a certificate the contractor emailed you. Pull the license status directly from the state board. Call the insurance carrier and confirm the policy is active and the coverage is real.
Prior projects inspected and references called. Not references the contractor selected. Ask for the last five addresses they worked on and contact those owners directly.
Litigation and lien history searched. Court records and county recorder filings under both the individual's name and every business entity they have operated. A contractor with a pattern of liens and disputes has a pattern.
Draw schedule structured against completion, not calendar. Funds released only after a third party verifies the work exists. Never front-load. Never release for materials not yet on site.
Retainage held. Ten percent held back until final completion and lien waivers are in hand.
Bid reviewed for completeness. A bid substantially below competing bids is not a discount. It is either missing scope that will surface as change orders, or it is a number designed to secure the contract and the deposit.
A contractor who cannot survive this level of verification is telling you something before you have paid them anything. The verification takes a few days. The alternative, as investors discover regularly, is six figures and a year.
