I disagree with everthing said here.
1) In a foreclosure it depends on who forecloses and what their lein position is. Forgetting about tax and mechanics leins (First and last) if the second loan forecloses they have to make whole or take over the first mortgage (basiclly buy them out). They can then foreclose with all the proceeds. If the first forecloses they get first rights on all the proceeds and the remainder is paid to the second lein holder, than the third, etc. If there are no proceeds then all subsequent leinholders are wiped out.
2) Whether or not a lender cna come after you, something called a deficiency judgement, depends on many factors. Was the the purchase money loan (the mortgage used to buy the property)? Did you refinance? Is the 2nd a HELOC or 2nd mortgage? If you refinanced what did you do with the money? Agents can narrow the scope but to get the right answer we generally advise meeting with a lawyer and/or a tax professional since there are tax consequences if the home is sold short, foreclosed, etc.
3) One way or another your credit will be impactes ant the amount of time to repair is dependent upon how you manage your credit after the short sale or foreclosure. Dave Suttons numbers are rules of thumb, it may be longer it may be shorter. The true answer is it depends.
4) Short sales are not always the best alternative. Banks leverage sellers desires to maintain their good credit and often ask them to carry personal notes for some or all of the "short" in order to approve the sale, if they approve the short sale in a resonable period of time in the first place. From there it becomes a matter for you and your accountant. Since you ahve a 1st and a 2nd NOW the 2nd has a chance to recover some proceeds, at the expense of the first, instead of getting wiped out. If the 1st and 2nd are with different banks this can be a problem.
The other consideration for a short sale is if you have lender paid mortgage insurance backing up your loan. If you do, in most cases, claims are paid only on foreclosure. This is a question for the bank who has no interest in putting nay time into your file unless you are late on payments.
I would be glad to meet to discuss your situation over coffee.
Bob 'Love' Georgiou
Broker, ABR, e-Pro, GRI, CRS
925 980 3248
Buy and sell homes like an investment and make every dollar work!