I'd include the $3500 + interest on the $40K with the filing. I think getting the judgment would be slam dunk. Especially if you have a contract with terms of payment. I think I would start with a letter from the attorney indicating your intention to file the suit if the debt is not satisfied. Most lawyers will do this for less than $100. I have found this to be pretty effective. The threat of losing a home can be quite motivating to most people. I'd get the ball rolling soon. If nothing else you will be able to write the loss off, but personally, I'd rather have 78% of something instead of 100% of nothing.