Woulb Be Tenant/Buyer Backs Out. Refund?

Last Saturday (almost 2 weeks ago now), a woman and her husband wrote me a $2500 option consideration check for a lease-option on my property. I told them truthfully that the money would be applied 100% to the purchase price, and that it also is non-refundable (I told them this before they wrote the check).

Well, we never signed a contract (as I didn’t have one with me that day). I was to meet them this week and we were going to go over the contract and sign it. Instead, they backed out and demanded their $2500 option consideration fee be refunded within 30 days.

During the past 2 weeks, I have turned down or ignored about 5 people who had serious interest in the property, and the home still sits vacant with no tenant and nobody yet interested.

My understanding is that I have no legal obligation to refund the $2500. But, with no signed contract, is my understanding correct? My thought is that their $2500 took the home off the market, and they are accountable for that. They are threatening a lawsuit if they do not receive 100% back in a calendar month.

What can I do? Must I refund the money? How can I protect myself? Any input from others who have knowledge of real estate law, or who have experienced this is MUCH appreciated! Thanks!!!

Please correspond with me via email, if possible.

Thanks again,

I think you give them back the money… A real estate contract not in writing is a fraudulent contract…

By not having a written contract supporting the details of the option fee you would have a weak case. Also, by turning down other potential tenant/buyers you failed to mitigate your losses. If you feel strongly about keeping the money you could offer to return all but a portion to offset your costs or even refuse to return the funds entirely and let them take you to small claims court. Of course there you would be at the mercy of the judge.

And remember…you’re the big, bad INVESTOR :evil :evil :evil

I think you definitely need to give the money back. No signed contract leaves you in a bad position if they take it to court, plus think of the hassle. It’s not worth it in the end.

Moral to the story. Don’t take the money UNTIL the contract is signed!!!

You’d have a VERY weak case in court with nothing but a you said, they said defense. Give the money back and hope that that’s the end of it. lesson learned.

Lesson #2: ALWAYS have a contract ready to go.


Based on what you have posted, it does look like the best course of action would be to return the money.
And get on the phone to others who were interested in the house, they may not have found something yet.

In the mean time…a ? or two…
Did the potential now backed-out tenant buyers sign anything with you?
An application?
Any language on that?

In the future, collect money, AFTER they have signed the contract.
I do that almost all the time with tenant buyers in houses I’m selling that way.

At times, when people want to pay some, or most of the option money to hold a house (standing there with cash in hand, and lots of it gets my attention), and meet soon (never longer than 24-72 hours), to sign and complete payment, take possession…I will have them fill out an application, which has language in it covering this…

Here it is:

I Hereby deposit $ As option/earnest money to be refunded to me if this application is not accepted within 30 Business days. Upon acceptance of this application, this money is to be applied toward the option money or security deposit as outlined in the lease or option agreement . When this application is so accepted, I agree to execute a lease or option agreement at the discretion of the landlord/seller within 5 days after being notified of acceptance of this application, or the deposit/option money will be forfeited as liquidated damages in payment for the processing of my inquiry and application, including making necessary investigation of my credit, character, and reputation. If this application is not approved and accepted by the owner/agent, the deposit will not be refunded, and the application hereby waving any claims for damages by reason of non-acceptance which the owner/agent may reject without stating any reason for doing so.(Option/earnest money to be paid by certified check, money order or cash)
In addition a $ non-refundable application fee will need to accompany this application before it can be processed. (To be paid in cash, money order or checks made out to Landlord/Seller’s name @ 123 Any street, yourown, your state, zip code)

Now, a disclaimer…this is not legal advise, never been tested in court, and may or may not comply with your local laws.
So, check with a good competent RE attny locally before including in your application.
Now, with that said, I’ve also only really had to ‘use’ this, a handful of times, as 99% of my tenant buyers do move in, and sign everything etc.
A couple, long time ago, placed some money down, agreed to show up within 2 weeks to pay more and sign contracts…only to literally blow off appointments to sign and get keys, pay, etc, more than once.
Each case, as we’d turned down other potential buyers, thinking the place was sold, we kept the earnest/option money, paid thus far.
Each kicked up heels, first went no where, made noise, went away.
Second one, got a lawyer, who told her they had no case, went to the police, who filed a report, no action taken, no crim, BUT, referred the person to the state RE commission.
Who sent me a letter, demanding I refund, and that I answer right away, as well as come to their office, 200 miles away.
I told them on the phone, “ah, no”.
That went away, and they, the state RE commission sent me a letter a few weeks later, stating upon ‘investigating your activites’, we have found the following (a print out of my website offering referal fees), and said I was brokering without a license, and to stop.
I sent that to my lawyer, who sent them a letter, explaining things, and basically saying ‘he’s not a broker, is not acting as one, and if anyone is doing anything wrong, it’s those who are taking the fees, go pound sand’.
And they did, with a letter apologizing, and quoting a conversation I had with an investigator who said, “Oh, I thought investors had to be licensed agents or brokers”…she was new.

Anyway, try the above on your apps, and get the contact signed as you collect cash.
Until both are done, the house is still available.

Good luck,.
Jim FL


The information that Jim FL posts is truly expert. He has done hundreds and hundreds of deals. I am a student of his and have learned so much from him. This guy has a true PASSION for investing and TEACHING.

I have learned to read posts ONLY made by the guys and gals who are movers and shakers. Jim is one of the few I read after.

You are welcome to email me and I shall point you to more of his teachings.


Give them the money back. In my contracts, I have the tenant-buyers put their initials and date next to the word “nonrefundable” to let a judge know that they saw that the binder fee is nonrefundable. But if you have nothing in writing, you could be in for a bit of trouble proving that they knew this.

I am going to follow along with what most of the posters here have said. Legally, you had a binding agreement. A verbal agreement for real estate is not fraudulent, but it is not enforceable. Since you don’t have anything about the deposit being non-refundable, the courts have and would decide in favor of the tenants. Good luck.

I think you should fight for it! But only if:

  1. An attorney says that you did nothing unethical
  2. An attorney says you have a good case
  3. An attorney thinks they can get the matter resolved quickly and without costing an amount you don’t want to pay
  4. The time it would take to resolve is worth the hassle (it may only require one appearance in court by you)
  5. The would-be buyers are not threatening you or making life difficult

Sure, there’s other deals out there. But at the same time, these people have likely caused you real damages that have hurt you financially by tying up the house. I don’t think people should be able to conveniently forget everything you told them several times and then walk all over you and go unchallenged.

At least have your attorney send them a letter telling them that the deposit was nonrefundable. At least do something and see what happens, knowing you can back out before it goes to court.

Having said that, getting what you told them in writing would have been wise. But verbal contracts are still valid, just harder to enforce. Get an attorney’s opinion of how likely it is that you’ll win, what’s involved, and then at least threaten to enforce what they know they agreed to.

I’d give it back. You don’t have a contract so your position to fight is weak. I wouldn’t consider it worth the stress for $2,500. You may technically be in the right, but you can’t guarantee what a judge will do.

Tenants threaten a lot, but the odds that they will actually file against you goes up as the dollar amount goes up. I would not bank on their going away quietly.

So now you know to have contracts with you any time there is a possibility of a sale.

I also hope that you’ve figured out that you should be taking back-up offers when you don’t have a deal that is 100% done.

I have a good form if you wish I will e-mail over to you. and only you. It will be my good deed for the day.

It is a Non Refundable Holding Deposit form. And we have collected over 50K in 2 years off of this form.

Our network moves 7-10 homes in month in the Houston, TX area, We purchase all of them Subject 2.

Let me know.