Can we give them the money back? If we can give them the money back, is the money lawful for them to use as they please? If they decide to donate the money once we find the right property for the masjid and the school, can we accept their money? There are Muslims who have stores that sell liquor and pork; can we ask these people for donations?
1 & 2. If a donor's intention when he donated the money was for the purchase of the particular land in question, you became his trustee and representative with this money. If the efforts to buy this land have stopped or been cancelled, and the donor requests the return of the amount donated, then he has the right to have the money returned to him. However, since this money has been donated for the sake of Allah and is a sadaqa, they cannot spend it for personal use. You need to advise them that it then becomes their responsibility to spend it for a similar charitable purpose.
However, if the intention at the time of donation was for the purpose of the project and not for the particular land in question, then you are not obliged to return them the money, and you should try to spend it in a timely manner for the project for which it was appropriated.
3. There is nothing against accepting donations from such people, whenever they are willing to donate, and I advise you to be vigilant not to allow any personal enmity to grow among the parties involved, since the donors are at the root muhsinoon (good-doers).
4. Yes, you can ask for donations from such people, on the condition that it is not understood that you agree with the forbidden (haram) actions which they are practicing. Additionally, it is incumbent upon you to advise and caution them that they must give up selling such items which are haram.
Sheikh Muhammed Salih Al-Munajjid