Legal Question in Construction Law in Illinois

1. A proper construction contract would show your mom as the owner of the property, the project (being demolition of an existing home and construction of a new home for her as owner), changes to the contract, and then contractor's statements and supporting lien waivers for each progress payment and final payment will show what the contractor charged for everything, and what was paid for lien free. Permits in her name as owner and a certificate of occupancy would also be critical documents. It would be nice if the contractor also provided some kind of certificate of warranty. See answer #2 below.

2. I hope the bank approved the tear-down because otherwise that would normally be a mortgage default!!!! Normally in a situation like this the bank would want to control construction payments through some kind of title company escrow to assure proper paperwork, etc. (see #1 above) so that its interests are protected too. Construction escrows are really a good thing especially if you don't know what you're doing when it comes to the proper paperwork. There are such things as "fraudulent" lien waivers where the contractor will ask for payment saying he paid some of his trades when in fact he didn't; in that case the trades can lien the property and if the contractor has split, your mom could be stuck paying twice!!!

3. Tax issues: interest and points for the mortgage. Possible issues if there was a "home office" and depreciation deductions taken for it, and possible other tax issues based on facts that may exist but are not stated. Expenses? For what - the new home -- no she can't deduct or expense off the new home - but if it is a business plus home, there may be some options and she should contact a CPA at the very least!!!!

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