Suspensive Condition of Loan: A Deposit Must Be Refunded Even if the Loan Application Was Made Before the Preliminary Contract

Imagine: you are in Joué-lès-Tours, you have found the house of your dreams. You pay a deposit of €15,000, the preliminary contract is signed. But your bank refuses the loan. The seller refuses to refund your deposit, arguing that you applied for the loan even before signing the preliminary contract. What can you do?

This question, many owners and buyers ask themselves. The answer lies in a decision of the French Supreme Court (Cour de cassation) of 24 June 1987 (No. 86-11.545). It ruled: it does not matter whether the loan application was made before or after the signing of the preliminary contract. If the loan is refused, the deposit must be refunded.

This decision, little known to the general public, is nevertheless essential. It protects the buyer against the risk of losing their deposit when financing fails. Let's break it down together.

The Facts: A Story That Happens Every Day

On 17 January 1981, the Y couple sell a villa in Chinon. A preliminary contract is signed. The deed does not mention any suspensive condition of loan. The buyers pay a deposit. But they do not obtain the necessary loan. They then request the refund of the deposit.

The sellers refuse. Their argument? The loan application was made before the signing of the preliminary contract. According to them, the suspensive condition of Article 18 of the Law of 13 July 1979 (which allows the buyer to recover their deposit if the loan is refused) does not apply when the application is prior to the contract. The case goes before the Orléans Court of Appeal.

The Court of Appeal rules in favour of the buyers. The sellers appeal to the Supreme Court. The case reaches the Supreme Court in 1987.

The Reasoning of the Court — Analysed

The Supreme Court had to interpret paragraph 2 of Article 18 of the Law of 13 July 1979. This text provides that, even in the absence of an express clause in the preliminary contract, if the buyer does not obtain the loan, the contract is deemed concluded under a suspensive condition and the deposit must be refunded. But the law does not specify whether the loan application must be subsequent to the signing of the preliminary contract.

The sellers argued that a loan application made before the contract excluded the application of the suspensive condition. The Supreme Court rejects this argument. It states that paragraph 2 of Article 18 makes no distinction based on the date of the loan application relative to the contract. Consequently, the refusal of a loan applied for before the signing of the preliminary contract triggers the refund of the deposit.

This reasoning is logical: the law aims to protect the buyer against the risk of not obtaining the loan. The timing of the application is irrelevant; it is the refusal that matters. The Court thus confirms a broad interpretation of the law, favourable to the buyer.

What This Changes for You — Concretely

For a buyer in Chinon or elsewhere, this decision is a lifeline. If you pay a deposit and your loan is refused, you are entitled to get your money back, even if you had already made your loan application before signing the preliminary contract. Do not let the seller tell you otherwise.

For a seller, the lesson is clear: do not keep the deposit if the buyer provides you with a loan refusal. You risk a lawsuit you are bound to lose. Example: in Chinon, a property sold for €200,000, with a deposit of 10% (€20,000). If the loan is refused, the seller must refund the €20,000. Keeping this sum would be a violation of the law.

For a real estate professional (agent, notary), this decision reminds of the importance of informing the parties about suspensive conditions. Even if the preliminary contract does not mention a loan condition, the law applies automatically.

If you are in this situation, you must: 1) keep proof of the loan refusal (bank letter); 2) notify the refusal to the seller by registered letter with acknowledgement of receipt; 3) demand the refund of the deposit. If the seller refuses, you can take the case to the judicial court (tribunal judiciaire).

Four Tips to Avoid This Type of Dispute

• Always include a suspensive condition clause for the loan in the preliminary contract. Even if the law protects you, a clear clause avoids any dispute. Specify the loan amount, the validity period, the maximum interest rate.
• Only pay a deposit after obtaining a preliminary agreement from your bank. This reduces the risk of refusal. But if you do, keep proof of the application.
• Keep all documents. Loan application, refusal, correspondence with the seller. In case of dispute, these documents will be essential.
• Consult a lawyer specialised in property law before signing a preliminary contract. A professional in Tours or elsewhere can check the clauses and advise you on the risks.

Further Details: Related Case Law and Developments

This 1987 decision is part of a line of cases protecting the buyer. Before it, some courts of appeal considered that the suspensive condition only applied when the application was made after the contract. The Supreme Court put an end to these divergences.

Since then, other judgments have clarified the contours of the suspensive condition. For example, the buyer must prove an actual loan refusal, not a mere difficulty. The trend of the courts is consistent: to protect the good faith buyer who faces a refusal of financing.

For the future, if you are a seller, know that the law is unfavourable to you on this point. You cannot keep the deposit if the loan is refused. Better to provide for a forfeit withdrawal clause (indemnité d'immobilisation) if you want to protect yourself against withdrawals.

What You Absolutely Must Remember

Here is a checklist to act if your loan is refused:

1. Obtain a refusal letter from your bank.
2. Notify the refusal to the seller by registered letter with AR, within the time limit set by the preliminary contract (or within a reasonable time).
3. Demand the refund of the deposit in writing.
4. If the seller refuses, take the case to the judicial court of Tours (or the competent court) with the help of a lawyer.
5. Do not sign a release without having recovered the deposit.

FAQ:

• Can I lose my deposit if I applied for the loan before the preliminary contract? No, according to the 1987 decision, the deposit must be refunded.
• What should I do if the seller keeps the deposit? Take legal action. You have a strong chance of winning.
• Do I have to prove that I actually applied for the loan? Yes, keep proof of your application and the refusal.
• Can the seller require a forfeit clause? Yes, but it must be clear and accepted by both parties.

Are you in a similar situation? A first 30-minute consultation with Maître Zakine (€45) can save you months of proceedings — and often much more. Book an appointment →