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Land contract: how an installment sale of land works

A land contract is a sale in which the buyer pays the price in installments and the seller keeps title until the buyer pays in full. North Carolina regulates the contracts that cover a home the buyer lives in. A real estate attorney drafts and reviews the contract.

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Quick summary: This guide explains what a land contract is, when North Carolina’s contract-for-deed law applies, what it requires of the seller, and what the buyer risks. It is for landowners who are asked to sell on terms and for buyers who are offered them. The key takeaway: the seller keeps title until the last payment, so the recording, the forfeiture rules, and the seller’s own liens decide who is protected.

What a land contract is

A land contract is a sale in which the buyer pays in installments and the seller keeps title as security until the price is paid. The buyer usually takes possession at signing. The seller delivers the deed only after the last payment.

North Carolina law calls it a contract for deed. The statute’s definition covers any agreement with that structure, whatever its name: contract for deed, installment land contract, land contract, or bond for title. The definition applies when the buyer pays in five or more payments, not counting any down payment.

When the contract-for-deed law applies

Chapter 47H applies only to a contract that covers a home the buyer lives in. The definition of property has two parts:

  • Real estate with a home. Land in North Carolina where a structure for one to four families stands or is to stand, and the buyer occupies or will occupy it as a principal dwelling.
  • A manufactured home. A manufactured home in North Carolina that the buyer occupies or will occupy as a principal dwelling, with a purchase price of 5,000 dollars or more.

A lot bought for the buyer’s own future house can fall inside the chapter. A tract bought for timber, farming, or investment often falls outside it. Outside the chapter, the written contract and general law govern, and the buyer has fewer statutory protections. Ask a North Carolina real estate attorney which rules apply to your tract.

What the law requires of the seller

Inside Chapter 47H, the seller carries most of the duties. The minimum-contents section requires a written contract that all parties sign and acknowledge. The seller gives the buyer an exact copy at signing.

Contents. The contract states the legal description, the price, the down payment, the principal balance, each installment’s amount and due date, and the interest rate. It states who pays taxes, insurance, and repairs. It states the buyer’s right to cure a default and the right to prepay without penalty.

Cancellation. The buyer may cancel until midnight of the third business day after signing or delivery, whichever is later. The notice of that right sits above the buyer’s signature in at least 14-point bold type.

Statements. The seller sends a statement of account at least once every 12 months. It shows what the buyer paid, what remains, and the payments left.

Title. The title section bars a seller who does not hold title from selling this way. A seller with a mortgage on the land must give a separate written warning that the lender may foreclose even if the buyer pays on time.

Late fees. A late fee may not exceed 4 percent of the late payment. The seller may charge it only on a payment more than 15 days past due.

Watch for: A seller’s mortgage on the land. If the seller stops paying that lender, the lender can foreclose on land the buyer has paid toward for years. A title search before signing shows the lien.

What the buyer risks

The buyer risks the payments made so far, because the seller holds title until the end.

Forfeiture. Inside Chapter 47H, the seller cannot end the buyer’s rights at will. A forfeiture requires a breach of an express term, a contract clause that allows forfeiture, notice, and a chance to cure. The notice of default gives a cure date at least 30 days after service. A timely cure reinstates the contract.

Redemption. The buyer’s right of redemption ends only by a recorded mutual termination or by a court order, under the minimum-contents section. A waiver signed at the start of the deal has no effect.

Seller problems. The seller’s liens, judgments, death, or later sale can cloud the title the buyer expects to receive. An attorney’s title search at signing and again before the final deed shows what has attached.

Outside the chapter, the contract’s own default clause governs. Have an attorney read that clause before you sign.

How a land contract is recorded

Recording puts the buyer’s interest in the public record. Under the minimum-contents section, the seller records the contract or a “Memorandum of a Contract for Deed” within five business days after both parties sign. The seller pays the recording fee unless the parties agree otherwise.

For a contract outside the chapter, recording still matters. Under the state recording act, a contract to convey protects the buyer against later purchasers and lien creditors only from the time it is recorded. To see what the chain of title shows, read Title search for land: what it finds and who does it.

Take action: If you own land and a buyer asks for terms, find out first what the tract is and who else may want it. Start with Is your land a data-center site?

How it differs from other ways to sell land

A land contract differs from the other instruments in who holds title and what happens on default.

Instrument Who holds title before payoff What happens on default
Purchase agreement Seller, until closing The contract’s default terms apply
Option Seller, and the buyer may never buy The buyer lets the option lapse
Owner financing with a deed of trust Buyer, from closing Foreclosure under the deed of trust
Land contract Seller, until the last payment Forfeiture under the contract and, inside Chapter 47H, its notice and cure rules

A purchase agreement leads to a closing and a deed. See What is in a land purchase agreement?. An option gives the buyer a right, not a duty, to buy. See How an option to purchase land works.

With owner financing, the buyer takes the deed at closing and signs a note and a deed of trust to the seller. A trustee who forecloses under a power of sale files a notice of hearing with the clerk of court. See Owner financing land: how a seller carries the note. For bank and farm loans, see Land loans: how financing raw land works.

Key recap

  • A land contract lets the buyer pay in installments while the seller keeps title until the last payment.
  • North Carolina’s Chapter 47H covers contracts for a home the buyer lives in, including a lot for the buyer’s future house.
  • Inside the chapter, the seller records the contract within five business days, sends yearly statements, and gives at least 30 days to cure before forfeiture.
  • A seller’s mortgage on the land is the buyer’s largest hidden risk. A title search shows it.
  • Owner financing with a deed of trust puts title with the buyer at closing. A land contract keeps it with the seller.

Questions

Yes. North Carolina regulates contracts for deed in Chapter 47H when the land holds the buyer’s principal dwelling. Other land contracts follow their written terms and general law. An attorney confirms which rules apply.

Who holds the deed in a land contract?

The seller holds title until the buyer makes the last payment. The seller then delivers the deed, and the buyer records it with the register of deeds.

Is a land contract the same as owner financing?

No. Both let the buyer pay the seller over time. With owner financing, the buyer takes title at closing and the seller holds a deed of trust. With a land contract, the seller keeps title until the end.

What happens if the buyer misses a payment?

It depends on the contract and on whether Chapter 47H applies. Inside the chapter, the seller must serve a notice of default that gives the buyer at least 30 days to cure before forfeiture.

References

Primary sources cited on this page, in APA style.

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