The quick answer is - it all depends on what is negotiated in the short sale. You should know, in a FORECLOSURE, if the 1st forecloses and the 2nd gets nothing, they can come after you for the entire loan amount plus costs, arrearages, etc, under certain circumstances.
A short sale allows you to negotiate what will happen after the short sale. In a foreclosure, you have no negotiation, you just get what the law allows.
If you are working with a strong negotiator, they will work towards negotiating that the 2nd TD accept the monies they are receiving as payment in full on the note. Sometimes this involves the seller signing an unsecured note for a portion of the debt, sometimes the buyer ponies up the difference between what the 1st is offering and what the 2nd wants, sometimes the 2nd takes the payment from 1st and does not argue. The good thing about a short sale over a foreclosure is, you control what you agree to. If you don't get what you want from the 2nd TD holder, you can always decide to allow the home to foreclose. Meanwhile, you have added months to the foreclosure process, during which time you can plan your strategy for when you no longer own the home.
My philosophy is "Foreclosure is NOT an OPTION. It is something that happens to you after you have exhausted all your options." Find a great short sale agent and get your home into the short sale process. You may be surprised with the final results. Feel free to call ne if you have any questions. Dare to Dream.
Shel-lee Davis, CDPE
Your Real Estate Consultant for Life
RE/MAX Palos Verdes Realty