House flip gone horribly wrong. Need advise.

[Vince Campbell]

We started out just adding a room addition to a house. We're now looking at a $60,000 loss and 9 months to completion.

We got the permits and built the addition. When the contractor started to tie into the existing house he found the foundation was crumbling and the studs were rotting in some parts of the house. He suggested demolishing the house and building new from foundation up. So we gave the go ahead to tear it down but we didn't have a wrecking permit or any building permits to do that.

Obviously we got a stop work order and had to begin the permit process. Now we're facing a variance if we rebuild in the existing footprint of the house and a likelihood they won't approve our proposal.

We're in the house $100,000 total so far. The plan was to build a 1600 sq ft house 3 bed 2 bath. ARV $190,000. We are at least $125,000 away from doing that. We are estimating a $60,000 loss right now after closing, realtors fees holding cost ect..

Does anyone have any suggestions of what we could do to minimize our loss?

[J Scott]

He found that the entire foundation was crumbling, and there was no indication of this prior to your purchase?  Did you have an inspection before you purchased?  Are you sure the current contractor is being honest with you?  Have you had an engineer look at the house?

And if this contractor actually knows what he's doing, how could he possibly think that you could demo a house without a permit?

I'm not convinced this contractor knows what he's doing...perhaps get a second/third opinion?