I paid a “reputable” builder a $40,000 deposit to start my tiny home. Updates stopped coming. I drove to their shop and found the gates locked and a “For Lease” sign. The builder filed Chapter 7 bankruptcy. I called my insurance agent. “I have theft coverage,” I pleaded. “No,” he said. “You have property insurance. This is a financial contract dispute. We don’t cover bad business deals.”
Key Takeaways
- Insurance ≠ Financial Guarantee: Property insurance covers physical damage to property you own. It does not cover money you lost to a fraudster or bankrupt builder.
- You Need a Surety Bond: A Surety Bond (or Performance Bond) is the only financial instrument that protects your deposit. If the builder fails, the bond pays you back.
- Builders Rarely Offer Bonds: Tiny home builders are often small startups. They don’t have the credit to get bonded. This is a huge red flag.
- Escrow is Safer: Instead of a 50% deposit, insist on using an Escrow service where funds are released only as milestones are met (Frame up, Dry-in, etc.).
The “Why” (The Trap)
The trap is “Unsecured Deposits.”
In 2026, the tiny home market is volatile. Builders operate on thin margins. When you hand them $40k, you are an unsecured creditor. If they fold, the bank gets paid first, then the tax man, and you get nothing.
Your homeowner’s or renter’s insurance policy excludes “Voluntary Parting” (you gave them the money voluntarily) and “Business Risk.”
The Investigation (My Analysis of Protection)
How do you protect the cash?
Surety Bonds
- The Cost: A builder pays ~2-3% of the contract value for a bond.
- The Reality: If a builder refuses to get bonded, it means they have bad credit or no liquidity. Run.
Escrow.com / Third Party
- The Solution: Use a service like Escrow.com. You deposit the money there. The builder sees the money is there. You release it when they send a photo of the completed frame.
- The Fee: ~1-2%. Cheaper than losing $40k.
Credit Card Disputes
- The Limit: If you pay the deposit on a credit card (Amex/Visa), you might have chargeback rights, but usually only up to a time limit (60-90 days). Builds take longer than that.
[IMAGE: Graphic illustrating the flow of money: Buyer -> Escrow Service -> Builder (Safest) vs Buyer -> Builder (Risky)]
Comparison Table
| Method | Cost | Protection Level | Builder Resistance |
| Cash/Check Deposit | $0 | None (100% Risk) | Low |
| Credit Card | 3% Fee | Low (Time limits) | Medium |
| Escrow Account | 1-2% Fee | High (Milestone based) | High (They want cash flow) |
| Performance Bond | 2-3% (Builder pays) | Highest (Guaranteed) | Very High |
Step-by-Step Action Plan
- Check the License: Verify the builder is a licensed contractor. Check for complaints with the BBB and state Attorney General.
- Ask for Proof of Bond: Ask: “Are you bonded? Please send me your Surety Bond number.”
- Structure Payments: Never pay 50% upfront. Pay 10% down, 20% at framing, 20% at rough-in, etc. Keep the leverage.
- Visit the Shop: If you can’t physically go, hire a local TaskRabbit to go to the address and verify they are actually building houses, not just a P.O. Box.
FAQ
Does NOAH certification protect my money?
No. NOAH certifies the build quality, not the builder’s financial health.
Can I insure the build while it’s in their shop?
Generally no, because you don’t have “insurable interest” in the materials until they are identified as yours or delivered. The builder’s “Commercial General Liability” should cover the structure if the shop burns down, but not if they steal your money.
What if they just delay it forever?
Check your contract for a “Time is of the Essence” clause and penalty fees for delays.