Key Takeaways

  • A repayment agreement is a legally binding document outlining the repayment terms between a borrower and a lender.
  • These agreements can be used in various contexts—employment, housing, business, or personal lending.
  • Essential components include repayment schedule, interest rate, default consequences, and legal jurisdiction.
  • Voluntary repayment is often preferred over wage garnishment, but both methods may apply.
  • State laws and regulatory requirements may impact the enforceability and content of repayment agreements.

If you're wondering "what is a repayment agreement," it's an agreement made between lender and borrower outlining the legal rights and responsibilities of a loan.

You can find templates of repayment agreements online, as well as with your bank or credit union. These templates will usually fit the needs of loans made between two individuals. Debt calculators can also be a valuable tool in determining the correct repayment amounts.

Repayment agreements should include the following information:

  • Personal contact information for all parties.
  • The amount of money borrowed.
  • Any interest being charged.
  • Date repayment will start.
  • How much each payment will be.
  • How long the payment will last.

Having a detailed document is important. Your agreement should include as much information as possible, including what happens if payments must be stopped, renegotiated, or decreased due to unexpected situations. All parties involved need to have a copy of the final agreement, a timeline of when payments have been made, and what the remaining balance is, in the event of a dispute.

Project-Based Contract Administration

The eighth chapter of the U.S. Department of Housing and Urban Development (HUD) Handbook explains a renter's responsibilities for repayment if a determination has been made by the landlord that there was an error in housing assistance dollars received. If a repayment agreement is determined to be necessary, the following HUD guidelines must be met:

  • The renter is not responsible for undercharges as a result of the landlord's mistake in meeting HUD procedures for determining rental and assistance payments.
  • A renter needs to repay the landlord any overpayment of HUD dollars made within the five-year limit as outlined in forms HUD-9887 and HUD-9887A.
  • It is the landlord's responsibility to have form HUD-50059(s) available and show it was in effect for the overpayment of assistance period, as well as any additional information needed to determine the amount due to the landlord by the renter.

Key Elements of a Repayment Agreement

A repayment agreement should contain the following critical components to ensure clarity and enforceability:

  • Parties Involved: Names and contact information for both lender and borrower.
  • Principal Amount: The exact amount owed.
  • Repayment Terms: Installment amounts, due dates, and total number of payments.
  • Interest Rate: If applicable, including whether it's fixed or variable.
  • Default Clauses: What happens if the borrower fails to pay (e.g., legal action, wage garnishment).
  • Modification Terms: Conditions under which the agreement can be changed.
  • Governing Law: The jurisdiction whose laws will govern the agreement.
  • Signatures: Dated signatures from all parties involved.

Well-drafted agreements can help prevent disputes and are more likely to hold up in court if contested.

Repayment Obligation of Landlords

If an overpayment was found to be due to a renter providing incorrect information, landlords do not need to repay HUD immediately. Instead, a repayment agreement will be created, allowing payments to be made to HUD as the landlord receives payments from the renter.

Landlords are also responsible for repaying any overpayments found to be a result of landlord error or failure to follow HUD guidelines. Repayments may be made at one time or over time via decreased assistance received for housing assistance if a lump sum payment would put the financial health of the property in jeopardy.

Renters required to repay overpayments may do so at one time or choose to enter into a repayment agreement where both parties agree to repayment terms and conditions. If a renter requires assistance in creating a repayment agreement that both they and the landlord can agree to, they can reach out to their local HUD's Housing Counseling Agency.

The repayment agreement needs to include the following:

  • The ability for the agreement to be renegotiated if there is a change in the income of the family of $200 or more.
  • A statement explaining that repayment of overages is in addition to the normal rent payment.
  • Dated signatures for both the renter and landlord.

Renters who fail to repay overpayment are considered to be noncompliant in their lease, which may result in termination of residency. A repayment agreement needs to state the specific lease language that shows how a renter will be noncompliant and in jeopardy of losing their lease.

Legal Considerations and Enforceability

Repayment agreements are enforceable contracts, meaning either party can take legal action if the other fails to uphold their responsibilities. However, to be enforceable:

  • The agreement must be in writing.
  • All parties must have the capacity to contract (e.g., legal age and mental competence).
  • There must be mutual consent and consideration (something of value exchanged).

Some states require additional disclosures or have specific rules for wage garnishment, especially in employment repayment scenarios. It's important to check local regulations before finalizing the agreement.

Repayment Amounts

Repayment amounts are determined by what the renter can afford based on their income. The repayment amount plus the original rental amount cannot be more than 40 percent of the adjusted monthly income for the family.

Types of Repayment Agreements

Repayment agreements can vary based on the context in which they're used. Common types include:

  • Personal Loan Repayment Agreement: Between friends or family, often without collateral.
  • Business Repayment Agreement: Covers business loans or debts between business partners or investors.
  • Employment-Based Repayment Agreement: Often used when an employer pays for an employee’s training or education, and the employee agrees to repay costs if they leave the company early.
  • Rental or Housing Repayment Agreement: Common in subsidized housing, where tenants must repay overpaid housing assistance.

Each type may require tailored clauses and compliance with different legal standards.

Voluntary Repayment vs. Income Deduction

An employee may wish to repay a loan via installments as opposed to income deduction. In this case, a repayment agreement meeting the following guidelines should be presented to the creditor:

  • A written document.
  • Include signatures of debtor and creditor.
  • Outline all terms of repayment plan.
  • Include a clause for income deduction in case of default, stating that such a deduction cannot be more than 15 percent of disposable income unless employee has agreed to more in writing.

Best Practices When Drafting a Repayment Agreement

To create a strong repayment agreement:

  • Use Clear Language: Avoid legal jargon when possible. Ensure both parties understand their obligations.
  • Be Specific: Clearly outline dates, amounts, interest rates, and penalties.
  • Include Payment Methods: State whether payment will be made via check, bank transfer, payroll deduction, etc.
  • Allow Flexibility: Consider including hardship clauses or options for renegotiation.
  • Keep Records: Both parties should retain signed copies of the agreement and any payment documentation.

Using a legal template can provide structure, but customization is essential to fit the specific terms of your arrangement.

Frequently Asked Questions

  1. What is a repayment agreement used for?
    It documents how a borrower will repay a debt to a lender, including payment amounts, dates, and consequences for default.
  2. Is a repayment agreement legally binding?
    Yes, if it meets contract requirements such as mutual consent, consideration, and proper documentation.
  3. Can a repayment agreement include interest?
    Yes, parties may agree on an interest rate, and it should be clearly specified in the document.
  4. What happens if someone defaults on a repayment agreement?
    The lender may pursue legal action or initiate wage garnishment, depending on the agreement terms and local laws.
  5. Can I write a repayment agreement myself?
    Yes, but using legal templates and consulting an attorney can help ensure the agreement is enforceable and comprehensive.

If you need help with a repayment agreement, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law, and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.