Can the bank go after our estate after my husband and I pass away?

If the document specifies that the loan is "non-recourse," then the bank is limited to recouping the outstanding balance of the loan strictly from the collateral, i.e., the value from the sale of the lot. Otherwise, they can attempt to obtain any shortfall after sale of the lot by filing a claim against the estate of any of the borrowers on the loan.

Placing the real estate into a foreclosure will have a issue that you probably are not aware of….. when a property goes into foreclosure, the amount of the loan, interest & fees is all wrapped into the amount that is written off. The lender (the bank, mortgage co. or land co) will issue you & your wife a 1099-C Cancellation of Debt for that tax year. The 1099-C is fully taxable income and is reported to the IRS.

Could be quite a lot of $ as its the outstanding unpaid loan plus fees plus interest. It is fully taxable income and you will be expected to pay taxes on the amount.

IRS has publications & worksheet (form 982) on dealing with 1099-C. Most of the time with foreclosures the owner has costs over time on the actual house that can be used to offset the income. Your probably not going to have this as it's an unimproved lot. Dealing with all this is imo not a DIY, your going to need a CPA to do your taxe$ and then pay the IRS whatever $$ in taxes. Could be quite a lot of $$ owed as this is a lot in a gated community so I'd imagine was not cheap.

BTW any valid creditor who is owed more than $ 600.00 can issue a 1099-C. Many companies and financial institutions do them each year routinely.

Your going to be dealing with owing IRS way way way before your family is ever dealing with your "estate". You might want to think about selling it and getting the loan cancelled in full or partially from the sale rather than just walking on it.

Of course.

Any debt you leave behind will be paid by the assets of your estate...that includes bank accounts. The difference between the loan and the auction of the lot after foreclosure will be a debt of the estate.

Oh yes they can!

What are the implications for the couple's credit score from any of the proposed actions? I would consider which option is least likely to impact their credit score.

The home could be sold as a "short sale."