1. Short Sale Basic: To do a short sale, all lien holders must agree in writing. If they All do, then they can NotT come after you for a deficiency judgement. This applies to ANY loan. This law is good for all short sales in CA thru 2013. This great law may not be extended, we will not know until...the end of this year!
Do your short sale now.
2. Foreclosure - Usually its the first lien holder who forecloses. Any balance money notneeded to pay back 1st lien in full then goes to the 2nd lien holder, and isf any left to the 3rd leien hodler. In CA, the Deed of Trust states the holder only gets the house OR the money, not both. So 1st usually goes away, but those pesky 2nds and 3rds can come after you.
Try a short sale. Its best. Call me with any more questions, been doing this for quiet sometime.
PS- new law CAR is trying to get approved......If you have a PrerApproval short sale letter from all Lien holders..they can not foreclose on you. At this time, the short sale is never complete until the lien holders receive AND accept the money paid to them. You want your escrow to confirm this.