I'm fairly certain you'd have to come up with the difference on closing. Our RE agent told us about some clients of his having to write a cheque for $60,000 to cover the mortgage. I had no idea that's how it worked.
And that's on top of any realtor commissions and lawyer fees you'll have to pay to close. I'd sooner find someone who can fix up the house - if you hire a general contractor, you might get a guy running a few projects (i.e. not going to fix your place in a day and a half) but at least you might save a few $$$.
I wouldn't sell, especially in this market, and with a house that's in terrible state of repair. You're going to take a bath. And you'll have to scrounge up (by your estimate), $40,000 cash, to make the sale. That's a lot of cash to find, especially if you can't afford to finish the job. Maybe it's a good time to learn some home repair skills. They have classes at Home Depot (free, usually) that will help teach you the basics.
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