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 — Sacramento builds run from about $85,000 for a Junior ADU to $500,000 for a large detached unit — the 10% figure is never the binding number, so the math always lands on the $1,000 cap. Any builder asking for 30%, 50%, or 'half down to get on the schedule' is violating state contractor law — full stop.
The rule exists because money paid ahead of work is money at risk. On a $250,000 build, an illegal 50% deposit would put $125,000 in a contractor's hands before a single inspection passes; the legal structure instead caps your upfront exposure at $1,000 and moves the rest only as verified work gets done. That's the whole logic of the milestone-draw schedule below — your payments stay behind the build, never in front of it.
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 |
Why do milestone draws protect you better than an upfront deposit?
The whole point of an inspection-tied draw schedule is to keep your money behind the work, never ahead of it. Each draw releases only after a phase is actually finished and a building inspector has passed it, so at any moment the most you can lose if the builder walks is the value of the last completed, inspected stage — not the tens of thousands an illegal 30–50% upfront deposit would put at risk. That is exactly the gap that left Anchored Tiny Homes' customers exposed: large sums collected ahead of work, then a Chapter 7 bankruptcy and a revoked CSLB license with little built to show for it. A schedule capped at the $1,000 legal down payment, followed by small draws tied to design, permit, foundation, framing, rough MEP, drywall, and final inspection, structurally removes that exposure.
There's a second layer of protection worth understanding: the mechanics lien. In California, subcontractors and suppliers who aren't paid can record a lien against your property even if you already paid the general contractor — so a builder who collects your money but stiffs their crew can leave you facing a claim on your own home. The defense is the same discipline that protects your deposit: pay in milestone draws tied to completed, inspected work, and ask for a signed conditional or unconditional lien release (a lien waiver) from the contractor and major subs as each draw is paid. Pairing inspection-tied draws with lien releases means your money tracks verified work and your title stays clean.
What's the deposit-protection checklist before you sign?
Run this short checklist before you hand over a dollar. Every item reflects a rule or red flag covered above — together they're the difference between a protected build and an exposed one.
- Refuse any down payment over $1,000 — it's the legal cap under B&P §7159 and the #1 red flag
- Verify the CSLB license is active, unexpired, and in the right classification at cslb.ca.gov
- Confirm the builder is bonded and insured, and get written proof
- Get a written, fixed-price contract that itemizes scope, finish allowances, and what triggers a change order
- Tie every payment after the deposit to a passed inspection or a verifiable milestone — never pay ahead of the work
- Collect a signed lien release (lien waiver) from the contractor and major subs as each draw is paid
- Check reviews and ask for references on completed local builds before signing
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.