1031 Contractor Nightmare: $33K Gone

[Andres Martin]

I'm posting this partly as a cautionary tale and partly because I'm running out of options—so if anyone has dealt with something similar, I'd love to hear how you handled it.

Last year, I closed on a duplex where the only way the numbers made sense was if I could turn the detached garage into an ADU. So we made it work.

To finance the rehab, I negotiated seller concessions—about $33K that would go directly to my contractor for the necessary repairs and ADU build-out. We structured it so the contractor got half at closing to start work, with the other half to follow after phase one was complete.

Here's the catch: I had actually worked with this contractor before through my property management business. He'd done handyman work and minor contracting jobs on other properties—both mine and my clients'—and he was always reliable, always on time. So when it came time for this bigger job, I trusted him. Mistake.

He started on the first unit (the side that needed the least amount of work), and it took him three and a half months to finish something that should've moved faster. Then, before he was supposed to touch the second unit, he just... disappeared. Ghosted. Stopped responding to calls, texts, emails. Gone.

I immediately called the title company to void the second check. But here's the kicker—more than 90 days had passed, so the check I had was already void. The title company, on their own, reached out to the contractor asking if he wanted a new check since the first one hadn't been cashed (it was in my power). They reissued it. He cashed it. Got paid for work he never did.

What I've done since:

• Called the police (said they couldn't do anything)
• Talked to my brokerage (recommended a lawyer)
• Consulted with the lawyer (said the amount was too low to sue him and that it would cost me more to sue him than what I was going to get if I won. Also said that nothing would guarantee him paying the money even if we won) 

But I'm not sitting on this. I brought on a different contractor—solid guy—and he managed to finish the second unit of the duplex. Both sides are now occupied with tenants. He's starting next week on the ADU conversion in that detached garage, and we're looking at a two to three-month timeline. Should be wrapped up by end of summer.

My question for the community: Does anyone have experience with contractor fraud at this scale? Are there legal remedies I'm missing? Has anyone successfully recovered funds in a situation like this?

Small claims court is technically an option, but the max there is $20K, and I'm out $33K. Plus, I'd have to find him first, and I would have to be in charge of collecting the money when I win the case.

I'm also posting this as a heads-up: if anyone on here has worked with a contractor matching this description, let me know in DMs. I don't want to see anyone else get burned by this guy (Idon't know if the forum guidelines allow me to post his name here, so I won't, but if anybody in the area wants to know who he is, feel free to send me a PM).

Any advice appreciated—or just commiseration at this point.

[Dan H.]

Are you stating title company issued the second check without your authorization?   If so, they failed on their fidituary duties to you and should cover that error.

Was the contractor you used licensed?   Were they bonded and insured?   Different jurisdictions have different procedures for issues with licensed contractors, but this is where I recommend you start if he was licensed.   If he was not licensed, your best remedy is small claims court where the maximum amount you can sue for will be fairly small.   Also winning in small claims court is sometimes only half the battle.   I have an $8k judgement that the other party has failed to pay $1.    The next step is a financial asset hearing where the judge rules how I recover the $8k.   It is my view that the process is broken.

Good luck