This is a good post and here is a page/site that summarizes the different rules by state.
It looks like a good resource for everyone.
Beware of Bankers Bearing Gifts
The other day I was talking with a client about Listing his home as a Short Sale. As a responsible Realtor with an SFR designation I was also talking about the alternatives to a Short Sale and possible consequences.
One of the things that came up is he had refinanced his home. This was part of a loan modification effort and he had refinanced with his current lender and took no cash out. The modification has not helped him with his basic problem of needing to relocate for family and work issues.
An important fact about the "modification" was that the loan is no longer a purchase money loan, which makes it a recourse loan. If they borrow gets foreclosed on the lender can now pursue the homeowner for losses on the loan. Laws may vary from state to state, but in California Purchase Money Loan is non-recourse.
If modification works for you great, but be careful about getting into a modification that does not work for you, there are consequences. From what I understand is most modifications are not working out.
As part of the Short Sale we will attempt to negotiate with the bank to not pursue the balance after the Short Sale.