Short Sales: 10 common myths
Short sale vs foreclosures -- the Banks' preference
So much good info out there!
What I can tell you is that whatever the consequences, there is no profit and the tax consequences in almost every case I've seen is worst in a foreclosure relative to a short sale. You are probably not eligible for any debt relief as an owner but depending on your basis that 180k deficiency will and can be reduced depending on a variety of individual factors.
If you get foreclosed on, yes the second loan (heloc) could come after you for a settlement. Mortgage relief debt act expires 12/31/2013. I strongly suggest you short sale your property, opposed to foreclosure.
My clients did the same thing --- bought a house in Alameda, then bought another house in Martinez. They couldn't get enough rent money to cover the mortgage on the first house. Since their financial circumstances have changed due to hardships, they qualified to do a short sale.
If you can do a short sale, that will be better than letting the property foreclose. Too many reasons to list in one short response as to why short sale is your best bet at this time.
Yes, you should be able to take advantage of the Mortgage Debt Forgiveness Act which was just extended through end of 2013 (California legislature still has to meet to mirror this act in the state).
I can send you some information to review, including samples of hardship letters, financial worksheets (income vs expenses). Who is the bank?
I'd like to help even if it's just to get you start thinking short sale instead of foreclosure....