What a Horrible situation. Like Ute said, if the REALTOR isn't reporting this amount as income, he'd be in trouble with the IRS. Also, the contractor must report his income as well, and, I'd imagine if he's getting paid cash, he's probably not reporting it (hence the cash).
Contact a lawyer immediately to see what direction to take. Without knowing more details, it sounds pretty unethical and illegal, but that's just my opinion. A lawyer will be able to give you straight forward answers. Good luck. I hope you get this resolved after putting so much money up. Let us know what happens.
It just sounds like the contractor is working "under the table" and the agent is aiding that by paying him cash. At the same time, I am not sure why the agent would make the deposits in his own name as could have a problem with this if he gets audited by the IRS. They'll want to know why the deposits are not reported as income (I am of course making an assumption that they are not reported since he does not keep all the money). I'd be also curious, how much the contractor gets actually paid and whether the agent holds any money back for facilitating this arrangement. I don't like to jump to conclusions, but to me it really does not sound right.
The sad thing is that the project is not yet finished and you don't even know if it will pass inspections.
I would run, not walk to an attorney ASAP, take all the documentation that you have and I think you have a case, if not illegally, but perhaps morally, and surely not acting in your best interest!
But we do have to remember, there are two sides to each story, what bothers me the most is you have given money to the Realtor, not to the actual person doing the work - did they give you any percentage that they were working for?
Good luck on finding a good win win solution!
regarding your realtor, he probably violated Article 11 of the Code of Ethics.
You should really consult a lawyer as others have already mentioned.
One suggestion I have that you can imost certainly mplement: At the end of the year, make sure that you or your accountant prepares and sends a Form 1099. This is an IRS form used for payments made to subcontractors. This documents and protects the taxable basis of your property. This will be impt when you sell it. Also, the realtor will now have to pay income tax on the whole shebang, unless he can document related expenses. This should cause him some issues if he has indeed been paying cash to the contractor.