What Happens If My ADU Contractor Walks Off the Job? (How Renovation Loans Protect You)

By Buz Artiano, BuildX | June 2026

Watch: ADU Financing in MA w/ Taylor Stefano & Cindy Gordon of Loan Depot | BuildX Podcast

This thought keeps you up at night. You're committed to building an ADU and you've signed the contract, gotten the permits, and the excavator has started to tear into your backyard. Then your contractor stops returning calls and the workers disappear. You now have an ADU that is half finished, no money left, and no way to move forward. This isn't an imaginary problem. It happens in Massachusetts, and it happens more often than most families expect.

My name is Buz Artiano, and I am the founder of BuildX. We've built dozens of ADU projects across Massachusetts, mostly around the South Shore and Plymouth County areas. We are the only team you need: we handle design, permitting, and construction. So we see every phase of a project from the first site visit up until you move in. We deal with septic constraints, zoning issues, and the state's new ADU laws. We know what can happen when homeowners finance a project and there is no oversight on the contractor. And we have also seen what happens when the financing itself gives protection to the homeowner. The difference between those two things is what this article is about.

The real question is not if a contractor could leave your construction only partially finished, but if the way you finance could protect you in that situation. We are going to discuss the specific ways that protect homeowners who take out a renovation loan, explain why HELOCs and cash can leave you unprotected, and show what to look for before you sign anything.

What Actually Happens When a Contractor Abandons an ADU Project?

We got a call from a homeowner who paid her contractor $200,000 and had about 30 percent of the work she was promised. The contractor walked away, and so she was left trying to figure out how to finish the job without any money and a building that couldn't sit open through the winter in New England. That is what happens when a contractor abandons a job. It is not just a delay. It is a financial crisis.

When a contractor disappears in the middle of a project, the homeowner has three immediate problems. The first is financial: money was paid for work that was not completed and it is gone unless you try to get it back by legal means that could take months or years. The second is structural: there are exposed framing, foundations that are not sealed up, and roofing that's incomplete. All that can be destroyed quickly in the Massachusetts weather. The third is finding a new contractor. Hiring a new contractor to finish someone else's work costs more than starting over because the new builder has to check everything the first contractor did before starting where they left off.

The situation above is not out of the norm. It is the worst-case outcome when the financing doesn't have any contractor accountability built in. The homeowner in that case had financed the project with her own personal funds, which meant there was nobody checking the progress before money was paid.

How Does a Renovation Loan Protect You From Contractor Problems?

A renovation loan (also called a 203k loan for the FHA one, though conventional renovation loans also exist) works differently than a HELOC or cash financing because it puts supervision of the contract right into the way the payments are structured. The protection comes from two different sources: HUD and the draw-based payment system.

A HUD consultant is trained and works for the Department of Housing and Urban Development (hud.gov). Their job is to review your project at each phase before the lender pays out any money. These consultants are trained on home improvement and the cost of renovations, and some are licensed contractors themselves. They make sure the homeowner is not getting charged unfairly and the work is really getting done as it should.

Every time more money is needed, the HUD consultant goes to the property and makes sure that the work for that phase is complete: cabinets done, bathroom done, kitchen done. They check off each thing, let the lender know it's completed, and only then will the lender make the next payment to the contractor. The contractor gets paid for completed work, not for promises.

If a contractor leaves a project that has a renovation loan, the damage isn't widespread because the lender only paid out money for checked, completed work. The remaining project money stays in the escrow account so it's protected. The homeowner can use that remaining balance to hire a new contractor to finish the work, so that's very different compared to the homeowner who paid out over $200,000 in cash and received only 30 percent of the job.

At BuildX, we welcome HUD consultants for the renovation-loan jobs. Some builders think the oversight is a bother, but we see it as proof that the process is working. When a third-party professional checks every single phase of the building, it approves your work and you have written proof that the project is on track. A builder who doesn't want that kind of oversight is showing you something about how they run their business. We have been through this process enough times to know that having additional accountability helps everyone: the homeowner, the lender, and the builder.

Why Does a HELOC Leave You Exposed If Something Goes Wrong?

A HELOC, or home equity line of credit, lets you have access to a sum of money that is based on how much equity you have in your home. Once that is available you can write a check for the full amount with no rules on how or when you pay the contractor. That gives you the flexibility to decide, so it has an appeal, but can also carry a risk.

With a HELOC, there is no HUD consultant. There is no schedule to take out the money. And there is no one else checking that the work is done before the money is paid out. If you write your contractor a $300,000 check on the first day, the lender isn't involved in making sure that money only goes for completed construction.

If you have never built a major construction project before, a renovation loan that has some oversight built into it is worth dealing with the additional restrictions. The initial cost of a HUD consultant is usually about $1,000, and there is also an appraisal fee of approximately $500, so around roughly $1,500 total you would pay for renovation loan costs. It is a small price compared to the risk of writing a large check with no system to verify the work has been done.

How Does the Lender Vet Your Contractor Before Work Begins?

Renovation loans don't just protect you during construction. The protection starts before the ground has been broken for the ADU. The lender has a team of people that checks the qualifications of your contractor before giving their approval for the loan. This process includes making sure that your contractor has an active license, checking their bid to make sure it is reasonable, and collecting two to three references from old clients. They will also check the contractor against a lender blacklist of builders who have caused problems on their previous building projects. That blacklist is real, and it lets lenders track contractors who have walked off jobs, overbilled, or failed inspections on their previous projects.

None of that process will happen with a HELOC. When you get the money from a line of credit, you are the one that has to check licenses, call about references, and make sure the contractor is legitimate. Some homeowners do those things but many don't, and the consequences of choosing the wrong contractor when you have unprotected financing are serious.

What Does the Draw Process Look Like Step by Step?

If you understand how the draw process works it will remove the mystery from renovation-loan financing. This is how it actually goes for an ADU project.

Once the renovation loan closes, the contractor will start construction. The whole budget for the project is in an escrow account and is handled by the lender. When the contractor finishes each phase of the building, they will ask for money from the escrow. The HUD consultant goes to the property and makes sure that the phase is complete. He writes down what he saw and then reports back to the lender, and then the lender releases that money to the contractor.

This same cycle repeats after every phase until the project is finished. The contractor never has access to the entire budget at once. Each payment goes to verified, completed work.

One thing contractors need to know before deciding to do a project with a renovation loan is that they may have to come up with some initial material costs before the first money is released. Smaller contracting firms, especially those who only have one or two people working for them, don't always have enough cash to cover those costs. That is one reason lenders would rather deal with established builders who have enough money to work with a draw-based system.

Is a Renovation Loan the Right Fit for Every ADU Project?

No. And we say that even though we work with renovation-loan clients all the time. If you have a lot of equity in your home, and a contractor that you trust and have a relationship with from previously working together, as well as the financial discipline to be in charge of a self-funded project, a HELOC could be a reasonable choice for funding your ADU. The interest rate on a HELOC and the closing costs are usually less (about 1 percent of the line), and there isn't a HUD process that might make your timeline longer.

The renovation loan is the most sensible for those who are building a big project for the first time. It is also best if you don't have an existing relationship with a reliable contractor, or if you want the peace of mind that you get from a third party who checks all the work being done. The additional structure is not an extra expense, it is insurance.

If you do choose a HELOC, be sure to add your own safeguards. Check the contractor's license yourself through the state licensing board and talk to their references. Do not ever pay more than 10 to 15 percent of the total project cost at the beginning of a project. Build your own schedule for release of funds that is tied to completed phases, even if the lender doesn't require one. The protections put in a renovation loan are there because they work. You can duplicate some of them on your own, but you have to be careful about it.

What Should You Ask Any ADU Builder Before Signing a Contract?

No matter how you decide to finance your ADU, the contractor you pick is the most important decision you will make. Before you sign a contract, be sure you ask these questions and pay attention to how the builder answers them, not just what they say.

First, ask whether the contractor has experience working within a renovation-loan type of payment system. Builders who have worked on renovation-loan projects understand that they will be held accountable and aren't likely to resist that type of payment. Also, ask for their active license number and check it on your own. Ask for three references from builds they have finished in the last year, and call each one of them. Ask what they would do if a problem comes up in the middle of the build. A contractor who can't explain their change-order process and how they communicate with you is a contractor who hasn't thought through what happens when things don't go as planned.

At BuildX, we are a design-build firm, and that means we manage every phase of your ADU from the idea through getting the certificate of occupancy. Having just one company that is accountable for everything means there is no one pointing fingers between an architect, a general contractor, and subcontractors. When you call us, you get the team that is building your project.

How Will You Protect Your Investment Before Construction Starts?

The difference between a protected ADU investment and one that is at risk isn't luck. It is structure. Renovation loans have that structure built into the financing itself. They have contractors that are checked out, milestones that are verified, and a third-party professional who makes sure your money goes where it's supposed to go. If you decide to finance a different way, you can still put protections into the process, but you have to do that yourself. Either way, the time to make that decision is before your contractor starts building, not after they stop returning your calls.