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 holding makes the contract’s attorney’s fee clause enforceable: a seller who prevails in a suit to recover the earnest money deposit can also recover reasonable attorney’s fees.
What happened in Reynolds-Douglass v. Terhark?
The case that settled this question started in 2017 with a $250,000 offer on a Wake County home. The standard Offer to Purchase and Contract called for a $2,000 due diligence fee and a $2,500 additional earnest money deposit. Three days after signing, the buyer asked for a $5,500 price cut; when the seller said no, the buyer walked without paying either fee. The seller took the due diligence fee claim to small claims court and won, then added the earnest money deposit and attorney’s fees. The trial court’s total award came to $18,343.92, including $13,067.70 in attorney’s fees. The case reached the Supreme Court on appeal.
Why did the court call the contract an evidence of indebtedness?
The legal question was whether N.C.G.S. § 6-21.2 applies to a residential purchase contract. The statute makes attorney’s fee clauses enforceable on notes, conditional sale contracts, and other evidence of indebtedness, and North Carolina’s general rule otherwise leaves each side paying its own fees. The Supreme Court held that an Offer to Purchase and Contract qualifies: it is a written instrument, signed by the parties, that on its face evidences a legally enforceable obligation to pay money, the definition set out in Stillwell Enterprises v. Interstate Equipment. The Court further confirmed that fees spent defending the judgment on appeal are part of what the prevailing party can recover.
What did the dissent argue?
Two members of the Court dissented on two grounds. First, they read N.C.G.S. § 6-21.2 as a commercial-transaction statute, not one meant for residential sales contracts. Second, they argued the statutory formula should have capped the fee award at 15 percent of the outstanding balance, which on the $2,500 earnest money deposit would be $375, not the $13,067.70 the trial court awarded. The majority answered that the statute’s language does not limit it to commercial deals and that the contract expressly authorized reasonable attorney’s fees for the prevailing party.
How does this play out in Nash County?
Nash County is one of the few places in North Carolina where the county line runs through the middle of the city. Rocky Mount spans Nash and Edgecombe, historically divided at the Tar River and later the railroad tracks. The county a property legally sits in determines which Register of Deeds records the deed, which courthouse hears a contract dispute, and which county’s tax rate applies. The county’s identity is anchored by the mill revival around Rocky Mount Mills on the Tar River, and its western towns ride the US-64 corridor toward Raleigh.
Where do Nash County closings actually happen?
Nash County’s offices make the split-city reality concrete. The Register of Deeds is the official custodian of real estate records dating back to 1777, with free online search of current records. Tax bills are printed and mailed in August, due September 1, so contracts closing near that date must account for prorated taxes. The county publishes notices of sale for properties sold for unpaid taxes, and those sales carry different terms than standard residential contracts: no warranty deed, no title insurance. The City of Rocky Mount’s own history page describes it as the twin county city of Nash and Edgecombe.
A local example: Rocky Mount
A buyer signs a contract on a house near the Rocky Mount Mills area, pays a $1,500 due diligence fee and a $2,500 earnest money deposit, then has second thoughts and walks after the diligence period. The seller keeps the fee and the deposit. If the seller has to sue, the 2022 ruling means the buyer can also owe reasonable attorney’s fees. The buyer who never checked which side of the county line the property sat on may also discover the tax rate and recording office were not what they assumed.
The bottom line
Know the difference between the due diligence fee and the earnest money deposit before you sign. The fee is non-refundable once the contract is effective. The deposit is at risk once the diligence period expires, and under the 2022 Supreme Court ruling the seller’s reasonable attorney’s fees can be added to it if a lawsuit becomes necessary.
If you are in a dispute over a contract, a North Carolina real estate attorney is the right person to talk to. This article explains what the court decided, not what any particular contract says, and every contract should be reviewed by a lawyer before you sign it.
