Am I obligated to return my friend's down payment for owner financing?

Full question:

I sold a house, via owner financing 6 years ago with the stipulations this person, a good friend (and still is), would obtain permanent financing within 2 years. My friend could not obtain permanent financing, so he has been making payments to me for the past 6 years. For the most part this has been a good arrangement. Just to make sure we had some kind of an agreement past the 2 year period, and since this person is not qualified to obtain a permanent mortgage, we signed a lease agreement, in effect so they would continue to remain in the house and make payments. If my friend wanted his $30,000 back, would I have to return the money since it was never anything more than a down payment in the first place? It was not a deposit and the original agreement stated the money would be forfeited if he could not obtain the funds within the 2 year period (although he has the right to sell the house at anytime to get his equity back if he needed to). If he were to break friendship and demand his money, what obligation am I under to return the funds?

• Category: Contracts
• Date: 04/07/2025
• State: National

Answer:

The terms of your contract will dictate whether you need to refund the down payment. If the agreement specified that the money would be forfeited if your friend did not secure permanent financing within the two-year period, this clause is typically enforceable in court, provided both parties agreed to it knowingly. In a lease-purchase agreement, the buyer usually loses any option money if they do not complete the purchase.