Question: We bought forty acres of land in Coconino County five years ago for $200,000. We made a $20,000 cash down payment, and the seller did seller carryback financing of $180,000, plus ten percent interest, all due in five years. Although the forty acres of land in Coconino County was to be part of a large development of homes, five years later the forty acres of land is basically worthless. We have tried several times to negotiate the balloon payment of $180,000 with the seller. The seller has refused to negotiate with us, and now has filed a lawsuit against us to collect $180,000, plus interest and legal fees. We are shocked. We thought that, if we didn’t pay the $180,000 payment in five years, the seller would just foreclose on our forty acres of land. Can the seller sue us to collect $180,000, plus interest and legal fees, instead of foreclosing on the forty acres of land?
Answer: Yes. When a loan secured by land or other real property is due, any lender, e.g., Wells Fargo or your seller, generally has the right to either sue for the balance owed on the loan, or to foreclose on the land or other real property secured by the loan.
Note: One exception is a loan on homes built on 2 1/2 acres or less. These homes have the protection of the anti-deficiency statute that says that a mortgage lender’s sole remedy, if the homeowner defaults on the mortgage loan, is to foreclose on the home. A.R.S. § 33-814(G).