Sue or not?

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Oregon

1 sells his house on a contract to 2 and his girlfriend 3 who is 1's granddaughter. (2 and 3 are engaged at the time.)

Under the terms of the contract, 2 and 3 agreed to six monthly P&I payments and stipulated to put the house on the market by a certain date, sell it and pay off the contract to 1.

2 and 3 also stipulated they would, if the house hadn't sold, apply for mortgage financing to meet the six month deadline and pay off the contract to 1.

2 and 3 proceed with remodeling the house with the hope of significant profit on the flip.

During the remodel, 2 and 3 change their plan to marry each other and proceed toward other relationships (remaining amicable with each other, however).

As the six-month deadline approaches, 2 applies for mortgage in his name alone. 2 has some challenges and pleads with 1 for a $100K loan back to pay down other debts incurred for the remodel. 1 declines on the $100K but agrees to $50K, guaranteed by a trust deed on the property. The term on the $50K loan is twelve months; reasonable interest rate with no payments over the twelve months; 2 to pay 1's attorney's fees in case of default.

2 defaults on January 1, 2008 on his obligation to pay the $50K plus interest to 1.

Since January 1, 2008, 1 has agreed to three separate proposals put forth by 2 (2 has defaulted on all three), and paid approximately $3K out-of-pocket for attorney fees.

1 has not taken any collection action in the form of a lawsuit, thinking that a suit and subsequent judgment would severely jeopardize 2’s credit and ability to refinance.

Now 2 has retained his own attorney, and 1 suspects there is some nefarious plan in development in which 2, if successful with a refinance, will push 1 against the wall , demanding some debt forgiveness; a significant reduction in the amount that he will have to pay 1 to close out the contract.

Supposedly, 2 is in the process of refinancing the house, but resists providing proof of the application, as he agreed to do as part of the third, and last, negotiated plan.

Of interest, county records reveal that 2 has borrowed against his property to a level—given today’s real estate market—that he may not succeed structuring a refinance that will provide him with the $50K, plus interest, plus attorney’s fees he owes to 1.

Should 1 file a lawsuit against 2, and try to collect on the judgment?What is the name of your state?