I should also include we own the land and this is a private lot not in a development or subdivision.

The Escrow Fund should be there to protect both of you. He's told you how it protects him by making sure his fees are available, even if you abandon the project. But it should also protect you, that he can't access those funds until he hands over all lien waivers (subs and his own), gets a CO, and finishes all final touch up work. Elements like that should be in the Escrow contract.

Look at this as a positive thing, helping protect you both.

Personally, I'd be biatching and moaning about having to pay extra interest on my construction loan because of something like this, but I can see where it would be a good idea. We don't even have a contract with our builder, just a verbal agreement and a handshake, but I think our situation is definitely NOT the norm!!! LOL

Vonda

Tom, We are building on a cost plus contract, no bank involved. Our contract required us to put $75,000 in escrow (from which the contractor pays subs, materials, and himself) and we pay a monthly draw that pays whatever was spent in the month plus whatever amount is required to replenish the $75,000. I am satisfied with the way this is working, and the subs are happy at how quickly they receive their payments. I get a package with the draw application that includes signed releases, engineering and inspection reports/surveys, all draw requests, and a statement of % of completion as to the various subs' contracts.

Pamelah, your arrangements sound more than fair to me. We had our retirement house built by a contractor who got stiffed by a couple of the folks he was building houses for. Apparently with these folks the trick is to let the construction get close to being finished, and complain that the work isn't satisfactory, and refuse to pay the next ( in these cases, final, draw). Then the homeowners obtain possession of the building permits ( which apparently can be done in this county by simply providing proof of notification to the contractor of the homeowner's intent to do so- no sign-off or contractor approval needed for this), hire someone else to finish the work that isn't completed, and pay him the fraction of the money that's owed to the first contractor. I'm thinking this is successful mostly if the owner is providing his/her own financing, and doesn't have a bank construction loan financing the build, and the construction is done by a small individual builder who may not have the resources for extended legal proceedings against the homeowner. And apparently our contractor had a couple of other houses he was building for investment purposes for people who did finance the building through banks,and was notified by these banks before the houses were completed, that the banks would no longer fund the construction as the investors/owners/whoever realized they wouldn't make the profit they expected from building and reselling the houses ( this was at the end of the real-estate boom). Interestingly enough one of the "stiffers" contacted us and suggested we do the same thing, but we hadn't had any of the experience with this contractor that they had, and thought he did good work.

This contractor ended up in bankruptcy, even losing his own house, but we worked with him to get our house finished, pay off liens that had accrued, and the house turned out wonderfully.

I've also seen our neighbors here stiff contractors in the same way, so I know it isn't uncommon. I couldn't hazard a guess as to who stiffs whom more often- homeowners or contractors. But after seeing this happen, I think an escrow account can provide financial protection for all concerned.

The builder can slap a mechanics lien on the house if they are not paid, so demanding escrow is not exactly reasonable.

It is not like they do not have a security interest that cannot be easily enforced.
You will have all sorts of problems at any loan settlement if their are liens (or even missing lien waivers).