Installment Land Contracts
A Legal Moment

Contract-for-Deed1 Agreements

     Installment Land Contracts May be Enticing to Sellers and Buyers Alike but, if Poorly Drafted, the Parties are Wading into Treacherous Waters.

   In theory the arrangement sounds like a “win-win” situation:  A prospective purchaser is interested in buying a house but cannot qualify for a conventional loan.  Anxious to sell, the Owner is willing to accept a down payment combined with the buyer's monthly payments, and even likes the idea of keeping the house if the buyer defaults on her payments somewhere down the line.

  That is the theory but the potential pitfalls of "land contracts" in North Carolina may be inferred by the fact that in 2010 the State of North Carolina enacted an entire statutory sub-chapter to cover them.  Known as the “Homeowner and Homebuyer Protection Act,” N.C. Gen Stat. § 47H-1 et seq. (“Act”), the law imposes stricter requirements for land contracts with the result that such contracts are harder for Owners to enforce in a court of law when the buyer defaults.

     As one legal aid lawyer recently and gleefully told me:  “courts hate these things.”


  Whether titled “land contract,” “contract for deed,” “installment land contract,” or anything else, the Act applies to the situation where an Owner agrees to sell an interest in property to a Buyer who is to pay the purchase price in five or more payments, with the Owner continuing to hold title to the property until the full purchase price is paid.  (By contrast, in a conventional mortgage, the title passes immediately to the Buyer at the closing while the lender or owner-financier places a lien on that title in the form of a deed of trust.)

Minimum Contract Requirements

     As of October 1, 2010, a land contract must be in writing and contain any number of statutorily-imposed terms including, but not limited to:  the formal legal description of the property to which the contract pertains; the number, amount, and timing of installment payments; how much of a down payment, if any, the Buyer has made; late fees, if any; and the Buyer’s right to cure a default prior to forfeiting her interest in the property.

     A late-payment provision in the contract must limit the charge to no more than 4% of the installment payment, and can only be charged where the underlying payment is more than fifteen days past due.

    If the Owner has himself mortgaged the property, he needs to inform the Buyer of that fact prior to entering into the land contract.  

    Once signed by all the parties, the Owner is responsible for recording a copy of the agreement itself or a memorandum of the contract, with the register of deeds.

Ongoing Obligations

     When the Agreement is in place, the Owner is responsible for providing an annual statement of account to the Buyer and a host of other information such as how much the Buyer has paid under the contract, how much remains owing, the number of installment payments yet to be made, and how much the Owner has paid tax authorities on the property for the year.


     If the Buyer defaults on the contract – presumably failing to make one of the installment payments – the law requires the Owner first to notify the buyer of his intention to forfeit the buyer, and then to give the buyer a chance to cure the default within not fewer than thirty days.  The notice must be hand-delivered or served in the same manner as other legal process.

     Arguably the most startling aspect of the Act is that it deems a “violation of any provision” of the Act as an “unfair trade practice” under N.C. Gen. Stat. § 75-1.1.  Should a court decided that the Owner has engaged in an unfair trade practice under the land contract, it can order the Owner to pay the Buyer’s attorneys’ fees and costs and impose treble damages.

    If the foregoing narrative leaves you with the feeling that you have to draft a land contract carefully, and pay attention to ongoing obligations, then it has accomplished its purpose.
     1 An earlier version of this article was incorrectly titled "Rent-to-Own Agreements." Those agreements are subject to a separate statutory scheme contained in N.C. Gen. Stat. 47G-1 et seq. That statutory scheme will be discussed in a separate article. We regret any inconvenience occasioned by the misnomer. 


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Philip Roth is a founding shareholder at Marshall, Roth & Gregory, PC. One of the firm's principal litigators, Philip's practice involves myriad issues involving business contracts and real estate transactions.

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