Many HELOCs and other second mortgages require you to sign a Promissory Note, which does survive foreclosure. In a sale you would have to have them agree to accept a payoff of whatever can be negotiated to release the Title for transference.
If you sell, you will need to settle with both lenders and any other lien holder to transfer the Title. If the home is foreclosed, Jr. Liens can follow you. Your exact situation should be reviewed by an attorney as so many have suggested. You have a lot at stake here, don't rely on your own research or a message board.
In the 1st scenario it is a negotiation between you and your lender. A short sale can leave you with or if professional negotiated without a deficiency (the remaining debt).
In the 2nd scenario it depends who forecloses. WA state is a non recourse state, more commonly explained is that the position that forecloses gets what they get at auction and cannot pursue the deficiency. However, junior liens (ie helocs and second mortgages) that are forced to release their lien, they can pursue if they choose to. How will you know? they have 6 years to pursue and if they do and they win, they can take the next 10 years to collect and with simple paperwork they can extend that 10 more years.
I am happy to answer any questions if you would like to call me 360.908.1038 or view online at http://www.vreg.co/shortsale
As to your comment about a house being sold, it would typically be difficult to sell a house without paying off or otherwise dealing with the HELOC. If that happened somehow, that also would be something to talk to about with an attorney.
Finally, collection agencies probably don't do what we think of as loan modifications (I've never heard of that), but what they will do is set up payment terms and compromise debt. They're all about collecting debt, and sometimes that means accepting pennies on the dollar. Something else to talk to that attorney about.
I doubt the collection company has the ability to do a loan mod. However, the original lender may still work with you, and pull the collection back to do so. Try contacting the original lender yourself or with the help of your attorney.
Best wishes, Jim
Debt collection agencies don't do loan modifications. However, you might be able to negotiate the debt down, just as you can try with any other debt turned over to a collection agency. (I've never heard of a HELOC being turned over to a collection agency, but I guess it's possible.)
One other thing: Since a HELOC is a lien on the property, the collection agency would have the right to foreclose on your property.
For more details, check with a lawyer.