I am currently working directly with lenders like Chase and Bank of America. I have had my clients request to be approved for HAFA which is the Home Affordable Foreclosure Alternative. This is where the lender tries to do a modification. In the case of my clients they were not approved. Because we ran them through the program the lender is not going to try to get deficiency monies from them after their home sells in the short sale transaction.
Remember every short sale is different. Some lenders are more willing to work with you than others.
REALTOR | Mortgage Broker
Keller Williams Realty | 360 Lending Group
Best of luck to you
Thanks for asking. If your friend is seeking your help, don't handle this all by yourself. Get partnered with an experienced short sale agent. Your friend can get the help they need and you can learn from someone else.
To answer your question, it really depends on a number of factors. Ideally to our sellers, the bank takes the entire hit and relieves the seller from any further obligation. In some cases the bank takes the hit and pursues the seller for a deficiency. If there is a second mortgage, the first may not take much of a loss, but the second may release title only with by maintaining the right to pursue the seller for the balance.
This is barely scratching the surface, and there are various state laws which may make some of this inaccurate. In any case, start to learn about short sales and partner up with someone with recent success and both you and your friend will be better off.
Check out the site below for lots of help on the subject of short sales and a possible partner.