Bad contrator advice, and next steps as far as legal options

[Onzis Woods]

My wife and I just purchased our first home with 203k loan the bank gave half to the contractor and gave us the run around we are now about a month and a half in and this contractor did not pull permits as asked and consistanly asking us to make cuts that were not on bid i've had 3 contractors come in and say no more than 2000 has been spent and he has half of the money and says he is all out of money we have bought the appliances even though they were in budget when we talked to bank they say they are not responsible for the contractor money if it is deficient from the amout it takes to finish we asked them this before we closed and why they were giving so much upfront. they said thats how it is. what can i do now because the money we have to fix the house is held at bank and they will not release unless project is at 50 percent and the other bids we are waiting on say he is about 10 to 15 percent and they have to redo his work as well. the bank says just come up with the money what are our legal recoruses to get house finished. the only thing the bank says we can do is arbitration.