Taihe News | If your mortgage application is denied, can the deposit be refunded?
Release Date:
2026-08-06
When purchasing a home, the seller promised that if the mortgage application was denied, the deposit would be refunded. However, after the bank rejected the loan, the developer cited contract provisions stating that the deposit was non‑refundable. How should one handle such a situation? Recently, the People’s Court of Baiyun District in Guangzhou concluded a dispute over a housing sales contract, ruling that the developer’s standard exemption clause was invalid and ordering the developer to refund the buyer’s full deposit.
Basic Facts of the Case
Xiao Li took a fancy to a residential unit in a certain property development and, in succession, entered into a “Letter of Intent” and a “Confirmation Letter” with the developer. Under the terms of these agreements, Xiao Li was required to pay a deposit of RMB 30,000 toward the purchase of the property.
Given that his home‑purchase funds are financed through a bank mortgage, Mr. Li was concerned about potential issues with the loan approval process. Accordingly, before paying the deposit, he proactively consulted the sales representative at the development about refund procedures, asking whether the deposit would be fully refunded if the bank loan were to be denied.
The sales representative made a clear commitment in the WeChat group used for daily communication between the two parties: if the purchase could not proceed due to the bank’s refusal to grant a mortgage, the RMB 30,000 deposit already paid would be fully refunded. Relying on this explicit assurance, Mr. Li paid the agreed‑upon deposit of RMB 30,000.
Subsequently, Mr. Li submitted a mortgage loan application in accordance with the prescribed procedures; however, due to the bank’s internal underwriting standards, the loan was ultimately not approved. Mr. Li then requested the developer to refund his deposit. In response, the developer invoked pre‑drafted standard clauses in the Letter of Intent, asserting that any documents issued or signed by sales personnel, as well as any oral commitments or representations made, would not constitute part of the contract and would be non‑binding on the company unless formally confirmed in writing, thereby refusing to return the deposit.
Thereafter, despite numerous rounds of negotiations and communications, the two parties were unable to reach an agreement. Left with no other option, Mr. Li brought a lawsuit against the developer, seeking the return of the RMB 30,000 deposit he had paid for the property.
Judgment Result
After trial, the People’s Court of Baiyun District, Guangzhou, ruled that a certain developer shall refund to Mr. Li the deposit of RMB 30,000 paid for the purchase of the property.
The judgment has taken effect.
Judicial Commentary
Article 469 of the Civil Code of the People’s Republic of China provides that parties may conclude a contract in written form, oral form, or any other form. The salesperson’s promise during the sales process—that “if the bank refuses the loan, a refund will be issued”—constitutes an additional condition for the performance of the contract. This promise is specific and clear, sufficient to influence Mr. Li’s intention to pay the deposit. Prior to the signing of the Letter of Intent, this verbal promise had already become part of the mutual agreement between the parties. The salesperson’s conduct was attributable to a certain developer, and Mr. Li, relying on this promise, paid the deposit; this fact is corroborated by the WeChat records of both parties and should therefore be recognized.
The provisions of the “Letter of Intent” relied upon by a certain developer constitute standard-form clauses that were repeatedly used and pre-drafted by that developer. Although the provision was highlighted in bold, it effectively negates the binding force of any commitments made by the salesperson within the scope of their duties, exempts a certain developer from liability that might otherwise arise from prior promises, and shifts the entire transaction risk onto Mr. Li. Such a clause contravenes the principles of fairness and good faith and should therefore be deemed invalid in the contractual relationship at issue between the parties.
The judge cautioned that both developers and homebuyers should have a clear understanding of the role of the deposit and the conditions under which it may be refunded. If, due to objective reasons beyond the buyer’s control—such as bank policies—the mortgage application is denied or the transaction cannot be completed, or if, despite good‑faith negotiations, the parties still fail to agree on the terms of the formal contract, such circumstances do not constitute a breach by either party. In these cases, the buyer bears no subjective fault, and the developer has no right to forfeit the deposit. However, if the inability to execute the formal purchase agreement arises from the buyer’s own insufficient funds, a change in purchasing intent, an unjustified delay in signing the contract, or a unilateral request to alter core, already‑agreed‑upon terms—such as the purchase price or payment method—the buyer is deemed in breach, and the developer is entitled to retain the deposit. Furthermore, if the developer engages in wrongful conduct—such as raising the price unilaterally after receiving the deposit, selling the property to a third party, or deliberately concealing material information regarding mortgages, seizures, or restrictions on title—the buyer may seek double restitution of the deposit.
At the same time, homebuyers should carefully retain all original documentation pertaining to key commitments made by sales personnel—such as loan denial and refund policies, handover standards, and purchase incentives—that could significantly influence their decision to buy. This will help ensure they have evidence to support their claims in the event of future disputes. Real estate developers, for their part, should uphold the principle of good faith and strengthen training for their sales staff, ensuring that they accurately and appropriately interpret the relevant provisions of standard-form contracts. By doing so, they can prevent conflicts between verbal assurances and written agreements, thereby fostering a fair and orderly real estate transaction environment.
Statute link
The Civil Code of the People’s Republic of China
Article 496 Standard terms are clauses drafted in advance by one party for repeated use and not subject to negotiation with the other party at the time of contract formation.
Where a contract is concluded by way of standard terms, the party providing such terms shall determine the rights and obligations of the parties in accordance with the principle of fairness, and shall, by reasonable means, draw the other party’s attention to clauses that exempt or reduce its liability or otherwise involve significant interests of the other party, and, upon the other party’s request, provide explanations regarding those clauses. If the party providing the standard terms fails to fulfill its duty to give notice or provide explanations, resulting in the other party not noticing or understanding clauses that are of substantial importance to it, the other party may assert that such clauses do not form part of the contract.
Article 497 A standard-form clause shall be invalid if any of the following circumstances applies:
(1) It falls under the circumstances of invalidity stipulated in Chapter 3 of Section VI of Part I of this Law and in Article 506 of this Law;
(2) The party providing standard terms unreasonably exempts or reduces its own liability, increases the other party’s liability, or restricts the other party’s essential rights;
(3) The party providing the standard terms excludes the other party’s essential rights.
Article 587 If the debtor performs the obligation, the deposit shall be set off against the price or returned. If the party who paid the deposit fails to perform the obligation or performs it in a manner inconsistent with the agreement, thereby preventing the achievement of the contract’s purpose, such party shall have no right to demand the return of the deposit. If the party that received the deposit fails to perform the obligation or performs it in a manner inconsistent with the agreement, thereby preventing the achievement of the contract’s purpose, it shall return the deposit in double the amount.
Interpretation of the Supreme People’s Court on Several Issues Concerning the Application of Law in the Trial of Disputes over Commodity Housing Sales Contracts
Article 4 Where the seller, by means of subscription, pre‑order, reservation, or other similar arrangements, accepts a deposit from the buyer as security for the conclusion of a contract for the sale of commercial housing, if the contract fails to be concluded due to the fault of one party, it shall be handled in accordance with the legal provisions governing deposits; if the failure to conclude the contract is attributable to circumstances not imputable to either party, the seller shall return the deposit to the buyer.
( Reposted from: Judicial Case Research Institute of the Supreme People’s Court)
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