In June 2022 the North Carolina Supreme Court held in Reynolds-Douglass v. Terhark that an Offer to Purchase and Contract is an evidence of indebtedness under N.C.G.S. § 6-21.2. The decision makes the attorney’s fee clause in the contract enforceable. A seller who prevails in a suit to recover the earnest money deposit can recover reasonable attorney’s fees.
What happened in Reynolds-Douglass v. Terhark?
The dispute behind the 2022 ruling began as a $250,000 home sale in Wake County. The buyer signed the standard Offer to Purchase and Contract with a $2,000 due diligence fee and a $2,500 additional earnest money deposit, then tried to renegotiate the price down by $5,500 three days later. When the seller refused, the buyer never paid either fee and the contract collapsed. The seller first won the due diligence fee in small claims court, then amended the case to recover the earnest money deposit and attorney’s fees. The final judgment was $18,343.92, of which $13,067.70 was attorney’s fees, and the buyer appealed to the state Supreme Court.
Why did the court call the contract an evidence of indebtedness?
North Carolina follows the American rule: each side pays its own attorney’s fees unless a statute authorizes an award. N.C.G.S. § 6-21.2 is one of those statutes, covering notes, conditional sale contracts, and other evidence of indebtedness. The buyer in this case argued that a home purchase contract was not such an instrument. The Court rejected that reading. An Offer to Purchase and Contract is a written instrument, signed by the parties, that on its face evidences a legally enforceable obligation to pay money, which is exactly the definition the Court adopted in Stillwell Enterprises v. Interstate Equipment in 1980. The Court also held that attorney’s fees for defending the judgment on appeal are recoverable.
What did the dissent argue?
The dissent saw the majority’s reading as a break from the state’s long-standing policy that attorney’s fees are not recoverable unless a statute expressly allows them. The dissenting justices would have capped fees at 15 percent of the outstanding balance under the statute’s formula, which here would produce $375 on the $2,500 earnest money deposit rather than the $13,067.70 awarded. They also read the statute as limited to commercial transactions. The majority held that the statute’s plain language does not carry that limit and that the contract’s own fee clause governed.
How does this play out in Currituck County?
Carova is the northernmost stretch of the Currituck Outer Banks, a 4x4-only beach community where the pavement ends north of Corolla and the beach is the road. The market is heavy with cash buyers and short-term rental investors, and due diligence is about septic, dunes, access easements, and flood and wind insurance, not just the house itself. The 4WD access requirement, the remote location, and the storm history all shape what a contract means here. When buyers are investing serious cash in an oceanfront STR property, the earnest money and the attorney’s fees exposure from the 2022 ruling are not theoretical.
Where do Currituck County closings actually happen?
Currituck County’s rules make the market concrete. The Register of Deeds records all property documents and is explicit that it cannot provide legal advice or title searches, which means Carova buyers must arrange their own attorney representation and title work. The Tax Department assesses more than 24,000 parcels, collects the county occupancy tax from vacation cottages, and determines the land transfer tax due on sale. And from the second Saturday of May through the last Saturday in September, vehicles must display a county Beach Parking Permit to park on the beach, a rule that applies only to the 4WD area north of Corolla.
A local example: Carova
A buyer signs a contract on an oceanfront STR house in Carova, pays a $2,000 due diligence fee and a $10,000 earnest money deposit, then finds during diligence that the septic system needs a full replacement and the wind insurance quote is double the estimate. If the buyer walks after the diligence period, the seller keeps the fee and the deposit, and under the 2022 ruling can recover reasonable attorney’s fees if a suit is needed. The septic inspection that should have been scheduled early becomes the most expensive part of the deal.
The bottom line
The lesson for buyers in this county is the same as the lesson from the 2022 ruling: the contract is enforceable, and the fees are real. Use the due diligence period for what it is for, and do not let it lapse with questions still unanswered. Once the period is gone, the earnest money is at risk, and so is the other side’s attorney’s fee exposure.
This article is educational, not legal advice. If a contract question comes up, talk to a North Carolina real estate attorney, and have the actual contract reviewed before you sign it.
