(MENAFN- News Direct) > Building a new home is a dream come true for many - but what happens when that dream turns into a nightmare? That's what happened to Gina and Milo, a couple who handed their contractor, a trusted neighbor, $150,000 upfront for a $400,000 new-home build.

Gina says,“Construction was supposed to start in September, but we just found out he hasn't even got permits yet. He also claimed that he was purchasing materials, but we haven't seen anything, and there is nothing on our land. Now, my husband has been laid off and we're looking to relocate to an area with more job opportunities. With no progress on the home that we can see, we just want to cut our losses.”

Gina and her husband Milo have tried reaching out to their neighbor to discuss a refund, but he hasn't called back and won't answer the door. Milo wants to avoid getting lawyers involved if possible, but the couple wonders if there's any way to get their money back without one.

Here's what they need to know, and what you can do to avoid ending up in the same place.

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Can they back out of the contract?

Whether or not the couple can get their money back depends entirely on the details of their contract. If there is a cancellation clause that allows them to back out, they'll need to follow the terms of that clause.

If the contractor has truly gone MIA, that strengthens the case - they've likely breached the contract by failing to perform agreed-upon work. Even if the contract doesn't clearly outline the refund policy, the couple still has options. Here's where to start [1]:

Document everything

Save all messages, emails, receipts and notes from conversations. Take photos of the property showing no work has started and make a copy of the contract.

Send a formal demand letter

Outline the lack of progress and request a refund within a set timeframe. This creates a paper trail and shows you've made reasonable attempts to resolve the issue. Send the letter by certified mail so you can confirm the contractor receives it.

Contact local agencies

Many states require contractors to be licensed, bonded or insured. Check that the contractor has the right certifications and see if there is a complaint process to recover funds. If not, check to see if your consumer protection board offers recourse.

Consider small claims court

If the contractor is unresponsive, legal action may be your only way to compel a response. In some cases, a lawyer's letter alone can prompt movement. If not, see if your case qualifies for small claims court. The requirements can vary by state.

If fraud is suspected, consider contacting authorities

Calling the police wouldn't be a first step in this matter, but it's an option if you've exhausted all other avenues. There's a difference between a slow or disorganized contractor and one who knowingly took money with no intention of completing the work. Red flags that may indicate fraud include:

• The contractor refuses to show proof of permits or material purchases
• Communication completely stops after you request progress updates or a refund
• Other clients report the same behavior, suggesting a pattern

If you suspect this applies to your situation, you can file a police report or contact your local district attorney's office. Authorities can investigate whether the contractor committed fraud or theft, and having a report on file can also help your case if you pursue civil action later.

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Smart steps to avoid costly contracting mistakes

This couple's situation is a difficult reminder of what can happen when you trust the wrong person. While you can't prevent every problem, you can reduce the risk by doing your due diligence. Here's how you can limit your risk when hiring a contractor:

Vet the contractor: Before you hire a contractor, check their licensing status, ask for references, and look up reviews and complaint histories. Doing your homework before you hire can prevent situations like the one this couple is facing.

Never pay too much up front: While industry standards vary, for large jobs a deposit of 10 to 20 percent up front is far more common than handing over nearly 40 percent of the job costs before any work starts. If the contractor is asking for more, see if they'll tie additional payments to specific project milestones [2].

Get an iron-clad contract: Make sure your contract is detailed. It should include a payment schedule (ideally tied to project milestones), start and completion dates, required permits, and what happens if the project is delayed or cancelled - including details on how you'll be refunded.

Keep business and personal relationships separate: It might feel natural to want to give work to someone you know, but blurred lines between personal and business relationships can make it harder to hold them accountable if things go wrong.

For Gina and Milo, the best path forward may be a mix of documenting their case, sending a formal demand, and contacting licensing boards, with legal action as a last resort. While their situation is stressful, it highlights an important lesson: protecting yourself upfront with careful vetting and a strong contract is far easier than trying to recover $150,000 after the fact.

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Article sources

At Moneywise, we consider it our responsibility to produce accurate and trustworthy content people can rely on to inform their financial decisions. We rely on vetted sources such as government data, financial records and expert interviews and highlight credible third-party reporting when appropriate.

We are committed to transparency and accountability, correcting errors openly and adhering to the best practices of the journalism industry. For more details, see our editorial ethics and guidelines .

[1]. Angi . "What to Do if Your Contractor Doesn't Finish the Job: How to Handle Unfinished Contract Work"

[2]. Sweeten . "My contractor asked for a 33% deposit-is this normal?"

This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

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