We purchased land (3) years ago and the owner carried the note. We pay interest only and are allowed to pay up to $500.00 on the principle. We have recently discovered that we will not be able to secure a loan to build a house without coming up with at least half of the money (not going to happen). Can we basically walk away from the loan and will it effect our credit. We are prepared to take the loss of the principle paid to date.

If you default on the contract - and it appears there is a contract - yes, you can be sued for the full amount and, yes, that Judgment against you will affect your credit.

What are the terms of the note?

Carrying a note is different from a contract. You need to be clear what you have. If you have a mortgage with the seller carrying the note, then he may be willing to take back the property instead of foreclosing.

On the other hand if you have a contract for sale, then you need to read the contract to see what it says about defaulting on the contract.