How Do I Protect Myself from a Contractor Taking My ADU Money and Disappearing?

By Buz Artiano, BuildX | May 2026

Watch: ADU Financing, HELOCs & Construction Loans Made Simple w/ Ken Gonye | BuildX Podcast #15

You are about to write a check for tens of thousands of dollars to someone you met a few weeks ago, maybe online or maybe a neighbor recommended them to you. But either way, you are trusting a contractor with a lot of money, probably more than most people spend on a new car. The stories that you have read about contractors taking people's deposits and disappearing are not made up. They have happened in Massachusetts every year and they can happen to people who are careful and thought they had done their homework.

My name is Buz Artiano, and at BuildX we have built many ADUs all across the state of Massachusetts, with most of our projects on the South Shore and Plymouth County. We can deal with the design, permits, and the actual construction all in one place, and we comply with the state's by-right ADU regulations and city zoning requirements every day. During this time, we have seen families who were defrauded by contractors who demanded large deposits and then disappeared. We have also seen families that protected themselves by knowing one thing that most homeowners don't ever think about. How you pay for your ADU determines how protected you are.

This article explains the actual red flags that mean a contractor is running a cash-flow scheme, how your choice of financing can affect how much you are exposed to this kind of fraud, and the kind of payment plan an honest builder should follow. If you are about to give a large deposit to someone for an ADU project, read this first.

What Is the Number One Red Flag That a Contractor Will Take My Money?

The most obvious warning sign is a contractor that requires a large upfront payment to be made before any work begins. We see this happen all the time on projects that go wrong.

If your contractor comes to you and says they need $50,000 or $100,000 to get the project started, do not do that. At BuildX, our deposits are between $20,000 and $25,000, and then you pay for the work after it is finished. After the first deposit, the foundation will be put in and you can see when that is done. You have a foundation as-built survey, and then you will pay for that part of the project.

A contractor who asks for money from you every couple of weeks or needs a big payment at the first of the project is usually taking that money to pay old debts from projects he has done before. That is when the cycle starts. The deposit from your project goes to pay off the last client's overdue bill for materials. The next client's deposit pays for your framing. Sooner or later one project doesn't work and the whole scheme falls apart. You read about these cases in the paper: a contractor collected $75,000, promised to start building in two weeks, and then never showed up.

This pattern can be predicted because it follows the same financial reasoning each time. A builder that is working on other people's deposits does not have the available money to run a legitimate business. The amount of the request for upfront money is in proportion to the risk that this money will be going somewhere besides your project.

How Does My Financing Method Affect My Protection Against Contractor Fraud?

This is the part most homeowners never think about. The way you finance your ADU decides who will control the money, and who controls the money decides how much at risk you are if something goes wrong.

What Payment Structure Should a Legitimate ADU Builder Follow?

A legitimate builder has enough money to start your project without using your whole account right away. The structure of the payments should follow the phases of the construction, so you are never paying much before the work is completed.

At BuildX, the payment flow works like this: a deposit of $20,000 to $25,000 secures the and covers the start of the project. After that, payments will follow completed phases. When the foundation is complete, you can see it, and then you pay for it. When the framing is finished, you can walk through it, and then you pay for it. This is the way it will continue to work with each phase of construction.

We set up our payment system this way after seeing too many families get hurt by the other system. A builder who can't start work without being paid $75,000 does not have the financial means to do a $250,000 project. We have temporary cash for daily expenses because that is what a secure business does. When a contractor needs your deposit to buy materials for your project, that tells you they didn't have the money to buy those materials before you signed a contract. So that business is using the next client's money, not its own. It is not a matter of trust but it is about financial structure and the schedule of payments tells you everything you need to know about the condition of the builder's finances.

Can I Still Protect Myself If I Choose a HELOC?

Yes, but you need to build your own protections because the bank won't be doing it for you. A HELOC is the most popular ADU financing tool with the current rate of interest because homeowners with equity don't want to give up their low first-mortgage rate. That is a sensible financial decision, but it means you need to be disciplined about how your money is paid out.

You should set up your own payment schedule based on completion of milestones in the construction contract. Define the phases, and the materials needed for each phase, and what the payment amount will be for each milestone. Do not release payments based on a certain time period (like every two weeks) or on the contractor's cash needs. Only pay for completed work that has been inspected.

Before releasing each payment, check to make sure the work is finished. Visit the actual site and compare what you see to the plans. If you are not comfortable checking the construction work yourself, hire an independent inspector to look at each phase before you release funds. The cost for these inspections is small compared to the cost of paying for work that was never completed.

Never release more than the value of the completed work. It is a warning sign if your contractor says they need an advance for materials on the next phase. Materials are a cost of doing business and a builder who is financially sound buys materials first and then bills you after installation, not before.

What Questions Should I Ask a Contractor Before Signing an ADU Contract?

There are certain questions you should ask before you hand over a deposit and pay close attention to how the contractor answers. If he is hesitant, vague or defensive with the answers to any of them, it is a bad sign.

What is your deposit amount and payment schedule? A deposit of $20,000 to $25,000 on a $250,000 project is a reasonable amount but a deposit of $75,000 or more is not. Ask for a written payment schedule that goes along with construction milestones, not calendar dates.

How do you handle disbursements? If the builder pays his subcontractors directly and manages cash flow inside the business then that is a good sign. But if the builder has to have your payment before paying suppliers, that means he has a cash-flow problem.

Can I see a recent project or speak with a recent client? A builder who has projects that were finished in the past 12 months and will give you references has a track record. A builder who cannot provide references or only shows you projects from a long time ago may not have an active business.

What happens if there is a dispute about completed work? You need to understand the resolution process before it is needed. Your contract should define what is the completion of each phase and what happens if the homeowner and builder disagree.

Is a Construction Loan Always the Better Choice?

Not necessarily. We've discussed the protection advantages of construction loans, but the reality is that most ADU buyers in Massachusetts right now are using HELOCs and there are good reasons for that.

A HELOC can close within three to four weeks. A construction loan takes longer. A HELOC keeps the low rate you have on your current mortgage. A construction loan requires that you pay off your first mortgage and use the higher-rate construction loan which means giving up that 3% rate you locked in during 2020 or 2021.

If you have a builder that you can trust with a verified track record, a contract that is based on milestones, and the discipline to manage your own payments, a HELOC is a sensible way to finance. The HELOC itself is not the risk. The risk is what happens when you have both a HELOC and a contractor who is dishonest. The financing product does not make your contractor honest. Your due diligence does.

How Do You Make Sure Your ADU Investment Is Protected Before Construction Starts?

The contractors who take money and disappear count on those clients who don't ask the right questions and don't make sure the payments are structured around finished work. You can eliminate most of that risk before you sign anything. Just make sure you understand how your method of financing puts you at risk or protects you. Always insist on a milestone-based payment schedule, and never pay before the work is completed. That combination protects your investment regardless of which way you choose to finance your ADU.