Title: Owner Financing Land: How a Seller Carries the Note | FOUND Description: How owner financing works when you sell land in North Carolina: the note, the deed of trust, the federal seller-financer rules, and who drafts the papers. Canonical: https://lotsfound.com/insights/owner-financing-land/ # Owner financing land: how a seller carries the note In owner financing, you sell the land and lend the buyer part of the price. The buyer takes title at closing and signs a note, and a recorded deed of trust on the land secures your payments. [Talk about your land](/who-we-serve/landowners/) In this article 1. [What owner financing is](#what-owner-financing-is) 2. [How the documents work](#how-the-documents-work) 3. [How owner financing differs from a land contract](#how-owner-financing-differs-from-a-land-contract) 4. [What to check before you carry the note](#what-to-check-before-you-carry-the-note) 5. [The federal seller-financer rules](#the-federal-seller-financer-rules) 6. [Who drafts the documents](#who-drafts-the-documents) 7. [Key recap](#key-recap) 8. [Questions](#questions) 9. [References](#references) > **Quick summary:** This guide explains how owner financing works when you sell land in North Carolina: the note, the deed of trust, and what happens if the buyer stops paying. It is for landowners whose buyer asks them to carry part of the price. The key takeaway: the buyer owns the land from closing, you hold a recorded lien, and a North Carolina attorney drafts the papers. ## What owner financing is Owner financing is a sale in which you, the seller, lend the buyer part of the price. The buyer signs a promissory note for the unpaid balance and pays you over time. A deed of trust on the land secures the note. In North Carolina, the deed of trust is the usual security instrument, and Chapter 45 of the General Statutes sets the [foreclosure procedure](https://www.ncleg.gov/EnactedLegislation/Statutes/HTML/BySection/Chapter_45/GS_45-21.16.html) that enforces it. The buyer receives the deed at closing and owns the land from that day. You hold a lien, not the title. If the buyer stops paying, the trustee named in the deed of trust can sell the land under a power of sale. Sellers use owner financing for several reasons. A buyer may not qualify for a bank loan on raw land. A lender may not lend on the tract at all. A seller may want payments over years instead of one sum. ## How the documents work Owner financing uses three documents, and each one does a different job. - **The deed.** It conveys the land from you to the buyer at closing. - **The promissory note.** It states the debt, the interest, the payment schedule, and what counts as a default. - **The deed of trust.** It pledges the land as security for the note. A trustee holds the power to sell the land if the buyer defaults. The deed of trust must be recorded. Under the [state recording statute](https://www.ncleg.gov/EnactedLegislation/Statutes/HTML/BySection/Chapter_47/GS_47-20.html), a deed of trust is valid against lien creditors and later purchasers only from the time it is registered. The order of registration also sets priority. An unrecorded deed of trust can lose its place to a lender who records first. ### When the buyer stops paying The trustee starts a power-of-sale foreclosure before the clerk of superior court. The [notice-and-hearing statute](https://www.ncleg.gov/EnactedLegislation/Statutes/HTML/BySection/Chapter_45/GS_45-21.16.html) requires a notice of hearing served at least 10 days before the hearing. The notice goes to the parties the statute names, including each record owner. The clerk then decides whether the sale can go forward. ### The purchase-money rule A seller who carries the note usually cannot collect a deficiency after foreclosure. North Carolina's [anti-deficiency statute](https://www.ncleg.gov/EnactedLegislation/Statutes/HTML/BySection/Chapter_45/GS_45-21.38.html) bars a deficiency judgment on a deed of trust that secures the balance of the purchase price to the seller. If the land sells at foreclosure for less than the debt, the land is your recovery. The same statute requires the note to show on its face that it is for purchase money. When the seller prepares the note and leaves that statement out, the seller is liable to the buyer for any resulting loss. Your attorney drafts the note with this rule in view. ## How owner financing differs from a land contract In owner financing, the buyer takes title at closing. In a land contract, the seller keeps title until the last payment. North Carolina law calls the second arrangement a [contract for deed](https://www.ncleg.gov/EnactedLegislation/Statutes/HTML/BySection/Chapter_47H/GS_47H-1.html): the buyer pays in five or more payments, not counting any down payment, and the seller keeps title as security. Chapter 47H applies those rules to a home the buyer occupies as a principal dwelling. For a contract it covers, the seller must [record the contract or a memorandum](https://www.ncleg.gov/EnactedLegislation/Statutes/HTML/BySection/Chapter_47H/GS_47H-2.html) within five business days of signing. See [Land contract: how an installment sale of land works](/insights/land-contract/). | Question | Owner financing with a deed of trust | Contract for deed | |---|---|---| | Who holds title during the payments | The buyer | The seller | | The seller's security | A recorded deed of trust | Retained title | | The remedy on default | Foreclosure by the trustee | Forfeiture under the contract and Chapter 47H where it applies | A purchase agreement and an option are separate steps. The purchase agreement sets the terms of the sale, including the financing terms. See [What is in a land purchase agreement?](/insights/land-purchase-agreement/) An option gives a buyer the right to buy later on set terms. See [How an option to purchase land works](/insights/option-to-purchase-land/). > **The short version:** In owner financing, you trade one payment at closing for a stream of payments and a lien. The lien protects you only when it is drafted correctly, recorded promptly, and enforceable on terms you accept. ## What to check before you carry the note Check the buyer, the land, and your own position before you agree to carry the note. Each item below is a question. Your attorney, your tax adviser, and the record supply the answers. - **The buyer's ability to pay.** Ask for the information a lender asks for, such as income, debts, and credit history. See [Land loans: how financing raw land works](/insights/land-loan/) for what a bank asks. - **Your existing loan.** If a lender holds a deed of trust on your land, ask your attorney what a sale on credit means for that loan. - **Priority.** Decide whether your deed of trust will stay first in line. A buyer who needs a construction loan may ask you to subordinate, which puts the bank's lien ahead of yours. - **Partial releases.** A buyer who plans to sell lots may ask you to release each lot from the deed of trust as it sells. Put the release terms in writing. - **Taxes and insurance.** The documents should say who pays property taxes and insurance, and how you learn of a missed payment. - **The record.** Order a title search so you know what else sits against the land. See [Title search for land: what it finds and who does it](/insights/title-search-for-land/). - **Federal tax treatment.** Federal tax law treats a sale with at least one payment after the year of sale as an [installment sale](https://www.irs.gov/publications/p537). The same publication explains when a note with too little stated interest creates unstated interest. Your tax adviser answers how it applies to you. ## The federal seller-financer rules Regulation Z gives seller financers two exemptions from its loan originator rules. Those rules cover closed-end consumer credit secured by a dwelling, as [12 C.F.R. § 1026.36](https://www.ecfr.gov/current/title-12/chapter-X/part-1026/subpart-E/section-1026.36) states. **The three-property exemption.** A person who finances the sale of three or fewer properties in any 12-month period is not a loan originator if all of these are true: - The person did not build a residence on the property in the ordinary course of business. - The financing is fully amortizing. - The person determines in good faith that the buyer has a reasonable ability to repay. - The rate is fixed, or it adjusts only after five or more years, with reasonable limits on increases. **The one-property exemption.** A natural person, an estate, or a trust that finances the sale of only one property in any 12-month period can qualify on a shorter list. The person must not have built a residence on the property in the ordinary course of business. The payment schedule must not cause negative amortization. The rate rule is the same. This list does not include the ability-to-repay test or the fully amortizing test. Scope matters for land. Regulation Z defines a [dwelling](https://www.ecfr.gov/current/title-12/chapter-X/part-1026/subpart-A/section-1026.2) as a residential structure that contains one to four units. It also exempts credit [primarily for a business, commercial, or agricultural purpose](https://www.ecfr.gov/current/title-12/chapter-X/part-1026/subpart-A/section-1026.3). Whether a sale of vacant land, a lot with a house, or a farm falls under these rules is a question for your attorney. Ask about state licensing rules at the same time. > **Take action:** Before you agree to carry a note, find out how a buyer would read your tract and which kind of buyer it suits. Start with [Is your land a data-center site?](/who-we-serve/landowners/) ## Who drafts the documents A North Carolina real estate attorney drafts the deed, the note, and the deed of trust. State law defines the [practice of law](https://www.ncleg.gov/EnactedLegislation/Statutes/HTML/BySection/Chapter_84/GS_84-2.1.html) to include preparing deeds and mortgages and passing upon titles. A broker negotiates price and terms but does not prepare those instruments. The attorney also confirms that the deed of trust is recorded and indexed against the land. We read the record for the tract in a fixed order: the parcel, the recorded deeds and plats, and any deed of trust already on the land. See [Start with the right parcel](/what-we-check/parcels-and-boundaries/). We do not draft documents or give legal, tax, or lending advice. ## Key recap - In owner financing, the buyer takes title at closing and signs a note. A deed of trust on the land secures your payments. - Record the deed of trust promptly. Its priority runs from the time of registration. - North Carolina bars a deficiency judgment on a purchase-money deed of trust held by the seller, so the land is your recovery. - A contract for deed is different: the seller keeps title, and Chapter 47H governs contracts on a buyer's principal dwelling. - Regulation Z has two seller-financer exemptions for credit secured by a dwelling. Your attorney decides whether they apply to your sale. ## Questions ### Is owner financing legal in North Carolina? Yes. A sale financed by the seller with a promissory note and a deed of trust uses the same instruments a bank uses. Federal rules and state law can add conditions, so have a North Carolina attorney draft and review the terms. ### Who holds the title in owner financing? The buyer holds title from closing. The seller holds a lien through the recorded deed of trust until the note is paid, and then releases it. ### What happens if the buyer stops paying? The trustee can start a power-of-sale foreclosure before the clerk of superior court after the required notice and hearing. When the note secures the purchase price to the seller, the seller usually cannot collect a deficiency beyond the land. ### Do I need an attorney to owner finance land? Yes. Preparing deeds and mortgages is the practice of law in North Carolina. A North Carolina real estate attorney drafts the note and deed of trust and records them. ## References Primary sources cited on this page, in APA style. - 12 C.F.R. § 1026.2 (2025). [https://www.ecfr.gov/current/title-12/chapter-X/part-1026/subpart-A/section-1026.2](https://www.ecfr.gov/current/title-12/chapter-X/part-1026/subpart-A/section-1026.2) - 12 C.F.R. § 1026.3 (2025). [https://www.ecfr.gov/current/title-12/chapter-X/part-1026/subpart-A/section-1026.3](https://www.ecfr.gov/current/title-12/chapter-X/part-1026/subpart-A/section-1026.3) - 12 C.F.R. § 1026.36 (2025). [https://www.ecfr.gov/current/title-12/chapter-X/part-1026/subpart-E/section-1026.36](https://www.ecfr.gov/current/title-12/chapter-X/part-1026/subpart-E/section-1026.36) - Internal Revenue Service. (2026, April 30). *Installment sales* (Publication 537 (2025)). [https://www.irs.gov/publications/p537](https://www.irs.gov/publications/p537) - N.C. Gen. Stat. § 45-21.16 (2025). [https://www.ncleg.gov/EnactedLegislation/Statutes/HTML/BySection/Chapter_45/GS_45-21.16.html](https://www.ncleg.gov/EnactedLegislation/Statutes/HTML/BySection/Chapter_45/GS_45-21.16.html) - N.C. Gen. Stat. § 45-21.38 (2025). [https://www.ncleg.gov/EnactedLegislation/Statutes/HTML/BySection/Chapter_45/GS_45-21.38.html](https://www.ncleg.gov/EnactedLegislation/Statutes/HTML/BySection/Chapter_45/GS_45-21.38.html) - N.C. Gen. Stat. § 47-20 (2025). [https://www.ncleg.gov/EnactedLegislation/Statutes/HTML/BySection/Chapter_47/GS_47-20.html](https://www.ncleg.gov/EnactedLegislation/Statutes/HTML/BySection/Chapter_47/GS_47-20.html) - N.C. Gen. Stat. § 47H-1 (2025). [https://www.ncleg.gov/EnactedLegislation/Statutes/HTML/BySection/Chapter_47H/GS_47H-1.html](https://www.ncleg.gov/EnactedLegislation/Statutes/HTML/BySection/Chapter_47H/GS_47H-1.html) - N.C. Gen. Stat. § 47H-2 (2025). [https://www.ncleg.gov/EnactedLegislation/Statutes/HTML/BySection/Chapter_47H/GS_47H-2.html](https://www.ncleg.gov/EnactedLegislation/Statutes/HTML/BySection/Chapter_47H/GS_47H-2.html) - N.C. Gen. Stat. § 84-2.1 (2025). [https://www.ncleg.gov/EnactedLegislation/Statutes/HTML/BySection/Chapter_84/GS_84-2.1.html](https://www.ncleg.gov/EnactedLegislation/Statutes/HTML/BySection/Chapter_84/GS_84-2.1.html) ## Selling land - [Is your land a data-center site?](/who-we-serve/landowners/) - [How to sell land to a data center](/insights/how-to-sell-land-to-a-data-center/) - [What makes land attractive to a data-center buyer](/insights/what-makes-land-attractive-to-data-center-buyers/) - [Selling farm or timber land for development](/insights/selling-farm-or-timber-land-for-development/) - [How much is an acre of land?](/insights/how-much-is-an-acre-of-land/) - [What is land assemblage?](/insights/what-is-land-assemblage/) - [What is a ground lease?](/insights/ground-lease/) - [How an option to purchase land works](/insights/option-to-purchase-land/) - [What is in a land purchase agreement?](/insights/land-purchase-agreement/) - [The due diligence fee in North Carolina](/insights/due-diligence-fee-north-carolina/) - [What is heirs property?](/insights/heirs-property/) - [North Carolina tobacco land: what changed and where it goes now](/insights/north-carolina-tobacco-land/) - [What is taking North Carolina farmland?](/insights/north-carolina-farmland-loss/) - [Land contract: how an installment sale of land works](/insights/land-contract/) - [Land appraisal: how an appraiser values vacant land](/insights/land-appraisal/) - [Mineral rights: who owns what is under the land](/insights/mineral-rights/) Send the requirements. 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