I agree with Mansur; seek legal advice quickly.
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.