Take a deep breath and wait to see what the engineer says. It's hard, but you can do it.

There's no way to say without knowing what the function of the 20' wall is. You'll just have to see what the engineer says. That being said, just about everything can be fixed... for a price. Make sure you are satisfied with the results.

Yes, in all likelihood the mistake can be fixed using the engineer's recommendations. Failing that, the wall can be demolished and a new footing and continuous wall poured. As others have suggested, it is a good idea for you to talk directly to the engineer and obtain a copy of his report/recommendations. Obviously proper supervision of the remedy is essential, for both the contractor and you. Good luck with your project.

The structural issues can be solved by your engineer but the issue of waterproofing is just as important. You haven't told us enough to be able to get advice about waterproofing but it isn't an insurmountable problem.

Concrete bonding additive could assist the new pour bond to the older.

Some reading material:

http://www.instructables.com/id/Concrete-Bonding/

Normally a vertical cold pour joint would have a flexible "water stop" inserted in the end of the wall. In this case, it might have to be cut in or mechanically attached. Recesses at the faces would allow backer rod and sealant to be installed. This is a job for a professional waterproofer if the engineer and contractor are not experienced with it but a lot depends on the soil conditions and the exterior waterproofing and drainage system. If this system wasn't already well designed this may be an opportunity to get a good one for free..

But first solve the structural issues.

Thinking about it more, I do agree there probably needs some form of mechanical fastener. I found a very interesting new product using carbon fiber for foundation repairs. In the past carbon fiber has been used for bowing of walls and they came in plate form bolted to the foundation. It is now a mesh roll that gets epoxied to the wall. Epoxying this product on both sides of the wall should solve the bonding and waterproofing problem fairly easily.

http://www.stablwall.com/what-is-stablwall/

Hi All, We so appreciate your comments. My husband has been keeping an eye on your advice also. Right now we are still waiting to hear from structural engineer and are planning to get another engineer in to work out the waterproofing issues. All of your advice is being considered and passed on in question form to these engineers and our builder. We plan on having engineers on site when the "fix" happens. We also have our attorney involved to document every step so that if there is a problem in the future, the responsible parties will be held liable. And as far as cost, we have told our builder that he is responsible and he has agreed all costs are on him. We will get that in a legal document as well. Please keep the comments, advice, coming. And if I can answer any questions to help with the advice, please ask. Thank you!

JDS, Thank you for your comments. Please let me know what more can I tell you to help with the waterproofing advice? Thanks:)

PS. Someone has asked what the function of the 20 foot flawed foundation wall will be. It holds the entire U-shape stair well for the whole house (basement, main floor, second floor) , a mudroom, and a children's bedroom above mudroom.

The concern I see is that the wall is only 2 feet short. A guess (by this EE, I'm not a civil engineer) would be to cut back the wall so the new section would be 6 feet? Then cut a mortise in the current wall, drill and install rebar, and pour the new work. There would have to be some waterproofing along the joint.

They pour high rises in stages, floor by floor. I would feel optimistic the engineers and builder can come to an acceptable solution, on their dime...

We shouldn't guess about the structural solution without knowing the configuration of the wall. The issue is the wall's ability to resist the force of the unbalanced fill and we son't know what that is or how far the nearest perpendicular bracing wall is. The solution may be horizontal dowels (rebar drilled into wall) if the wall is laterally braced nearby or it might require a new perpendicular interior wing wall or removing the wall back to the nearest perpendicular brace.

Waterproofing can be easily maintained with the original system or a better one if necessary. Ask them for a better one for free. I like cold sprayed modified asphalt with a protective drainage board over it. A sheet membrane is another option, but the project could be in a desert where waterproofing is not important.

This isn't a difficult problem but it can't be solved in the abstract. Let the pros propose a solution. DO NOT let a lawyer contact anyone for any reason; there is no dispute. Even if there were a potential dispute it would be best to find a reasonable solution before raising that issue because if the work stops you have a much more serious problem.