We are homeowners who hired a general contractor for house renovations. We both (homeowner and contractor) signed the contract so a construction loan could be secured. The contractor has failed in so many ways there are too many to mention. According to the contractor, he is owed $25,000 but not the homeowner but the bank will not relinquish the funds, because, in the bank's opinion, the contractor had not completed the work he is requesting to be paid for. The contractor tried to write a new contract after not being paid for the purpose of asking for $20,000 to complete the job with one exception, he took it upon himself to use this new contract and eliminate a large job that was in the original contract. If we signed the new contract he would send a few workers to finish what in his opinion would complete the work and give us 48 hours to sign the new contract. We respectfully denied the new contract, and this was done without the knowledge of the bank that holds the construction loan. Within the contract, we had specifically asked for a particular manufactures siding, and the contractor had the audacity to bring and install a different manufactures siding. The siding the homeowner requested was even in the contract that both parties signed. The contractor even lied about being a certified installer of the product he installed, and the reason I say that is because the manufacturer of the siding that was installed will not warranty their product due to all the installation problems. We found out later the manufacturer had no certified installers in Ohio. Eventually, when pressured the contractor admitted he was not a certified installer. So what are a homeowner's rights in a situation like ours?
Unfortuantely this is a tricky situation. You as the homeowner have the right to the benefit of the contract (i.e. your home being built at the price quoted in the contract). As such, if the contractor breaches, as it appears the contractor has, then you are entitled to hire a new contractor to complete the work (and if that price, together with amounts previously paid to the original contractor, totals more than the original contract sum, you are entitled to be repaid for the overage).
The tricky part is the bank. Banks generally get skittish anytime change occurs. Because of the removal of the general contractor, the bank may send numerous requirements for you to comply before it releases additional money due under the loan.
Things could get even more interesting if the contractor (or contractor's subcontractors or suppliers) files a lien against the property. That would surely cause the bank to worry.
So in general your two biggest problems are the fact that the project is likely to cost more than you first anticipated (and there is a chance the contractor is not collectable, i.e. doesn't have money to pay the judgment), and also that the bank will be much more reluctant, from this point forward, to release loan funds.
I hope this helps.