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We just discovered that the cause of some water staining on the internal sill-plates on top of the basement foundation wall are due to the outside grade sitting ~2 inches above the foundation wall!! See picture below (our house on right).

A waterproofing guy (who does internal drain systems) suggested we build a rock/brick retaining wall, dig down about 1 foot below the foundation wall, put in retaining wall, and fill with rock up to a few inches from the top of the retaining wall.

Sound reasonable? Given the proximity of the neighbors home in the picture (slab on grade), is there any risk of destabilizing their foundation by putting in a small retaining wall (~18 inches high) about 2 feet away from the cement sidewalk in the picture?

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    Where is the property line? Why don't you just take out some dirt and landscape away from house? – DMoore Nov 22 '15 at 3:38
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The best way is, indeed, a shovel!

Is the property line the edge of your neighbors sidewalk? If so, I'd do what was recommended. You won't harm your neighbor's foundation removing 18" of soil that far away, but you will have to support their sidewalk...so you do want to make sure your retaining wall is properly built and solid, as, alas, your wall will be responsible for holding up their sidewalk.

You will still have to figure out where to put the water, though. I'd suggest what Samuel is suggestion and also install a french drain and try to route that to daylight if you can.

Do you know why your foundation is about 3' lower than your neighbors? Was your neighbor's house built after yours? It seems that whoever built that house might be the cause of the problem if they came in and just dumped a bunch of fill on top. If that's the case, you may have some recourse going after the home builder.

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i would do what the guy said, but leave out the retaining wall and install drain pipe. Perforated drain pipe will be less costly, install faster, won't aggravate the neighbors, and is a fairly simple DIY job.

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