The Sonzas likely aren't the only victims
According to Sonza, the family is out $315,700 with nothing to show for it. He said he repeatedly asked Anchored Tiny Homes for his money back but got no response. By the time he asked his bank to reverse the charges, it was too late to recover the funds.
Even if Anchored Tiny Homes had built the ADU, it never should have taken any advance payments. According to the California Contractors State Licensing Board, “It is against the law for a contractor to collect payment for work not yet completed or for materials not yet delivered.” Contractors can ask for down payments but they must be either 10% of the total cost or $1,000, whichever is less.
“That was probably one of the biggest flags I saw nearing my departure,” Chris Pace, former chief operating officer at Anchored Tiny Homes, told NBC Bay Area. Pace, who currently works for another ADU company, said he quit Anchored Tiny Homes in part due to the company's practice of asking families to illegally pre-pay for work and materials.
And a lot of people paid.
According to ABC10, Anchored Tiny Homes has suspended operations and “hundreds of customers” with unfinished projects are wondering where their money went.
Pace added that CEO and co-founder Colton Paulhus spent company funds on the production of his podcast. When asked if that was a legitimate business expense, he replied, “I don’t believe so.” He also told ABC10 that the Paulhus family often used the company's subcontractors for personal projects when they were supposed to be building tiny homes.
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“ADU construction is on the rise”
ADU construction is on the rise in California after legislation passed to streamline the permitting process and increase housing supply. Between 2016 and 2022, permits for ADUs increased by a staggering 15,334%, collectively resulting in 83,865 ADUs permitted, according to data compiled by California Department of Housing and Community Development and reported on by California YIMBY.
In 2023, one in three housing permits issued in Los Angeles was for an ADU. Other cities, including Seattle and Portland, are seeing similar increases in ADU construction.
ADUs can be a smart investment. The extra living space can be used as a rental property, giving homeowners extra income to cover their mortgage or help ends meet. They can also make it easier for families to care for aging parents or disabled relatives who still want to maintain some autonomy. They're also flexible. ADUs can be added in the form of a backyard tiny house, as the Sonza family planned, or even converted garages and large attic spaces.
How to protect yourself from ADU construction fraud
If you live in California, know that besides a maximum $1,000 down payment, pre-payment for construction is illegal. If any construction company asks you to set up a pre-payment schedule, consider ending any contract or discussion with that company.
Before you hire a company, make sure to read customer reviews and research them online and check that they have a valid license. Make sure there is a written contract.
Finally, make sure you understand how funds will be taken from your account and what recourse you can take. Though it's not clear exactly how Anchor Tiny Homes withdrew the funds, it may have been via ACH transfer. ACH transfers can be disputed, but consumers generally must file a complaint within 60 days to have the funds returned. Some banks may have even shorter time limits. If you see unauthorized debits to your account, call your bank immediately.
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