How to Protect Your ADU Deposit in California
Updated June 12, 2026 · Upside ADU
Quick answer
California law caps a contractor's down payment at $1,000 or 10% of the contract price, whichever is less — so on any ADU it's $1,000. A builder asking for 30–50% upfront is breaking the law. Protect yourself by paying the rest in milestone draws tied to passed inspections, and verify the builder's CSLB license is active before you sign.
How much can a California contractor legally collect upfront?
California Business & Professions Code §7159 caps a home-improvement down payment at $1,000 or 10% of the contract price, whichever is less. Because an ADU costs far more than $10,000, that math always lands on $1,000. Any builder asking for 30%, 50%, or 'half down to get on the schedule' is violating state contractor law — full stop. The rest of your money should move only as verified work gets done.
See also:The Upside Guarantee — our $1,000-deposit, milestone-draw structure
What happened to Anchored Tiny Homes?
Anchored Tiny Homes — a Sacramento-region ADU builder — collapsed into Chapter 7 bankruptcy, and the Contractors State License Board revoked its license. Public reporting and CSLB records describe hundreds of homeowners left with unfinished projects after paying large upfront deposits the company collected ahead of work. It's the clearest local example of why the deposit cap exists: when a builder holds tens of thousands of your dollars before breaking ground, you carry all the risk if they fail.
How do you vet an ADU builder before signing?
A few checks separate a safe builder from a risky one. Run all of them before you sign anything or hand over a deposit.
- Verify the CSLB license is active and unexpired at cslb.ca.gov (search the license number on the contract)
- Confirm the builder is bonded and insured, and ask for proof
- Insist on a written, fixed-price contract that itemizes scope and finish allowances
- Refuse any down payment over $1,000 — it's illegal and the #1 red flag
- Tie every payment after the deposit to a passed inspection or a verifiable milestone
- Check reviews and ask for references on completed local builds
What does a safe ADU payment schedule look like?
A protective schedule releases money in small increments, each after a phase is actually complete and inspected — so you're never far ahead of the work. This is how Upside structures every build.
Inspection-tied ADU milestone draw schedule
| Milestone | Triggers payment when… |
|---|---|
| Signing | Contract signed — $1,000 maximum (CA legal cap) |
| Design & engineering | Plans and structural set complete |
| Permit issued | Jurisdiction approves the permit |
| Foundation | Foundation poured and inspected |
| Framing | Frame complete and inspection passed |
| Rough MEP | Mechanical, electrical, plumbing roughed-in and inspected |
| Drywall | Drywall hung and inspected |
| Final / walkthrough | Final inspection passed and you walk the finished unit |
How does Upside protect your money?
Upside collects the $1,000 legal-maximum deposit and ties every payment after it to an inspection-passed milestone — money only moves when verified work is done. It's the structural opposite of the upfront-deposit model that burned Anchored's customers. The full schedule and our written guarantee are on the guarantee page.
See also:The Upside Guarantee · How to finance an ADU in California
This guide is general information, not legal or tax advice. ADU rules change often and vary by city — we confirm the current requirements for your jurisdiction during your free feasibility check.
Sources & references
- Contractors State License Board — license lookup & deposit law — California Contractors State License Board (CSLB)
- Business & Professions Code §7159 (home-improvement contracts) — California Legislative Information
External links open official government and lender resources. Construction price and rent figures reflect 2026 Sacramento-region market conditions; confirm current rules and fees with your jurisdiction.