Where Does Your Contractor Keep Your Deposit?

You sign a contract for a $40,000 kitchen remodel. Standard residential terms in Charleston: 30% on signing, 30% at rough-in, 30% at substantial completion, 10% at punch list. You wire $12,000.

Where does that money sit between the moment you wire it and the moment your contractor pays the first cabinet supplier?

If you don't know, you're not alone. Most South Carolina homeowners don't. Today, there is no rule that says where it has to go. In practice, it goes into the contractor's operating account — the same account that pays their truck note, their crew's wages, last month's lumber bill, and the deposit on next week's job.

That's not theft. That's how most residential contractors run their business. But it's also why, when a contractor disappears mid-project, the deposit you wired isn't sitting in a separate account waiting to be recovered. It's been spent.

South Carolina House Bill 4748 wants to change where that money sits.

TL;DR

• Bill 4748 (introduced January 13, 2026) would require residential builders and residential specialty contractors to deposit client funds into a separate, federally insured escrow or trust account.
• Contractors couldn't commingle your money with their operating funds, and could only withdraw to pay subs, suppliers, and direct project costs.
• LLR could impose civil penalties up to $5,000 per violation and suspend, refuse to renew, or revoke a license.
• The bill is currently in House Labor, Commerce and Industry. No effective date yet — but mark it.
• Whether or not it passes, you can negotiate escrow yourself today. Most contractors will agree if you ask before signing.

What the bill actually says

Bill 4748 would add a new section — § 40-59-255 — to the South Carolina Code. The mechanics are simple.

1. Funds received before completion go into escrow. Any client funds a residential builder or residential specialty contractor takes before the work is done must be deposited into a "separate, identifiable, federally insured financial account maintained solely for the receipt and disbursement of client funds."
2. No commingling. The contractor's own money does not go in. Your money does not pay their unrelated expenses. The two are walled off.
3. Disbursement is project-specific. Withdrawals from the account must go toward expenses associated with your project — subs, suppliers, materials, permit fees — and the contractor has to keep "contemporaneous, itemized records" of every deposit, withdrawal, and transfer. If you ask for the records, they have to produce them.
4. Penalties have teeth. Civil penalties up to $5,000 per violation. The state can suspend, refuse to renew, or revoke a residential builder or specialty contractor license.

That last piece is what makes the bill more than aspirational. SC LLR already has the authority to discipline residential builders. This gives them a specific, auditable rule to discipline against.

What's broken today

Right now, your deposit is an unsecured loan from you to your contractor. That isn't metaphor — it's contract law. Money you've handed over for a service that hasn't been performed is a prepayment, and a prepayment is a debt the contractor owes you. If they file Chapter 7 next Friday, you are an unsecured creditor sitting in line behind every supplier with a perfected lien.

In a healthy economy this rarely matters because contractors complete jobs faster than their cash flow problems catch them. In a tightening economy — and Census construction spending data has shown softer year-over-year growth into early 2026 — contractor balance sheets get squeezed harder. Some of them start paying for Job A out of Job B's deposit. The polite term is "lapping." It works until it doesn't, and when it stops working, the homeowner whose deposit funded last month's payroll is the one holding nothing.

I've seen this play out a few times over the last 18 months. They all end the same way: a homeowner with a half-framed addition, a contractor with a phone that no longer rang, and nothing in writing that said where the deposit had to be.

Bill 4748 doesn't make any of that risk disappear. It just means the contractor has to point at an account number and tell the regulator where the money is.

Why this is good for the contractors who already do it right

This is the part most coverage misses. Escrow rules don't punish the contractors who run clean books. They punish the ones who don't.

A contractor whose business model is "use Job B's deposit to pay Job A's invoices" can't survive an escrow rule. A contractor whose business model is "we pay our suppliers from our working capital and bill the client on milestones" already operates this way — and now they get a regulatory backstop that helps them say no to the cheapest competitor in the room.

The dynamic is the same one that played out in real estate after escrow rules came in for closings. Title companies with discipline thrived. The ones running deposits through their operating accounts got pushed out. The market became more reliable, and the cost of running a real estate transaction came down because the cost of trust came down with it.

Residential remodeling deserves the same evolution.

What you can do today, regardless

The bill is in committee. It might pass this session. It might not. You don't need to wait.

Three things to negotiate before you sign your next contract:

• Ask where the deposit will sit. Specifically: the bank, the account name, and whether your funds will be commingled with the contractor's operating funds. A clean answer sounds like "we'll set up a project-specific escrow at [bank], your funds won't be commingled, and you'll get the account info on signing." A muddy answer is your signal to slow down.
• Tie milestone payments to inspectable progress, not calendar dates. Don't pay 30% on contract signing. Pay 10–15% for project mobilization, then trigger payments off "rough-in passed inspection," "drywall installed," "trim complete." This makes contractor cash flow their problem, not yours.
• Get supplier and sub direct-pay language in writing. Some homeowners are now writing contracts that pay material suppliers directly — your check goes to the lumber yard, not the contractor. The contractor still marks up the materials in the contract price, but the supplier risk shifts off your deposit.

None of these require a new law. They require asking three questions you probably weren't going to ask.

Why we built Home Index for exactly this kind of moment

Bill 4748 is a state-level rule. State-level rules are blunt: every residential builder, every specialty contractor, the same standard. That's the floor.

The ceiling is what an open marketplace can do on top of it. If you're a contractor and you want to compete on trust, you don't just say "I'm licensed and insured" — you say "I run client funds through a project-specific escrow, here's the bank, here's the disbursement record, ask me for it." That's a verifiable, auditable claim. It's exactly the kind of claim a homeowner-facing platform should be able to surface, badge, and re-verify monthly.

That's the contractor verification stack we're building toward. Not to repeat the LLR's license check — that's free at verify.llronline.com. To surface the operational disciplines that separate a clean contractor from a sloppy one: how they hold deposits, how they document change orders, whether their insurance is current month-to-month rather than only at license renewal. The escrow rule, if it passes, makes one of those disciplines binary instead of fuzzy. That helps the contractors who are already doing it, and it helps homeowners pick them.

A note on timing

If 4748 moves this session, the effective date will likely be set 60–90 days after enactment — meaning contracts signed in late summer or fall 2026 could be the first to fall under it. Watch the bill's status on LegiScan if you have a project starting in Q3.

FAQ

If the bill passes, does it cover work I've already paid a deposit on?

Almost certainly not. SC licensure rules typically apply prospectively from the effective date. Existing contracts are governed by the rules in place when they were signed.

Does this apply to commercial contractors?

No. The bill is scoped to residential builders and residential specialty contractors. Commercial work has its own framework.

What about handyman work or jobs under the licensing threshold?

The bill targets licensed residential builders and specialty contractors. Unlicensed handyman work below the SC threshold wouldn't be covered. Which is one more reason to verify a license before you write a check — every license, every project.

Will this make my project more expensive?

Probably not directly. Running a separate account is cheap for any contractor at scale. The cost it does add is to contractors who were quietly using your money to subsidize their next job. Those contractors will either tighten their operations or leave the market. Both are fine outcomes for the rest of us.

Is there a way to push the bill forward?

Constituent contact with House Labor, Commerce and Industry committee members. The bill's text and history is here.

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Post your project and get competitive bids from qualified local professionals. When the bids come in, ask each contractor where your deposit will sit. The answers will surprise you.