Contractor Fraud: opened line of credit against our property

[Scott Byer]

I need advice. I am building three new construction single family homes at the same time with a contractor. Cutting to the chase, the contractor put in a draw for $23,000 for framing lumber. We paid him as requested. Months later, we were notified by the lumber yard that the contractor opened a line of credit against our projects and after at least one hot check never made a single payment to them. They have since put a lien against him and each of our projects at approximately $7500 each. 
We feel trapped with him between our contract (which he violated multiple times), the $23k he owes us, and his builder’s warranty. I’ve become utterly aware how naive It is to think this guy will repay us or honor his warranty. 

My main questions concern the line of credit he opened.
1.  Is this fraud on the contractors part?
2.  The lumberyard never contacted us to okay the line of credit. We never knew about it until the lien was being processed. How is this legal and legitimate?   If I take my car in to a mechanic and pay him cash to fix my car he couldn’t use my car as collateral to buy parts, right?  

Any advice or similar experiences out there?  Looking for hope of success getting this resolved.