The very first thing for your parent to do is to talk to his lender's loss mitigation department. They may have a program which allows them to reduce your payment and add it to your loan, or many other programs which lenders are able to provide (if they choose). If your parent isn't able to afford a reduced payment, then a short sale would probably be a good idea. The lender won't approve a short sale without a offer on the table. How this works is that your parent would hire a realtor, just as he would for a traditional sale but he should pick one who specializes in short sales or uses a 3rd party short sale negotiator. The agent will ask him to write a hardship letter, prepare copies of his income taxes and any other documents the bank needs, and send those along with the first offer that is received on the property. The bank will then review the information and hopefully approve the short sale, but this does take time. Your parent needs to know that the banks move at a VERY slow pace. It can take anywhere from 6 weeks to 16 weeks for them to come back with an approval or even a counter offer. A lot of this depends on the bank.
The government waived the income tax rule that was in place, where the home owners who had to sell as a short where sent a 1099 for the difference in loan amount as income. I'm not sure if they will still waive that next year. As for the other creditors, that has nothing to do with the short sale unless you are talking about a 2nd or 3rd loan on the property, overdue property taxes and past due HOA's. Those are all part of the short sale agreement.
Hope this helps. I'd be happy to talk with you more about this. Please feel free to contact me anytime via email or phone.
Mary Morris, Realtor
California Real Estate Services