There seem to be several people searching for information regarding short sales and the primary residence rules, regulations and guidelines. As with everything about short sales, you should always talk to an attorney about your specific situation.
If you are living in the home at the time the Notice of Default is issued you may have some protection when it comes to deficiency, second mortgages and so on. However, one of the issues some people forget to ask about is the 1099C that is issued. The guidelines on the tax relief are totally different, so be certain you talk to your attorney about each of these issues, since they can impact you differently.
Many homeowners that are in trouble are moving into a home that was originally purchased as an investment. Why? maybe the payment is lower, maybe they stand a better chance of keeping that property. Remember that there are different laws about the effects of short sales depending on, (A) the intention of the loan and (B) what is the use of the home at the time a notice of default is served.
Sometimes they weigh each other out, and if you are insolvent you should discuss that too with an attorney. One of the biggest scares to the short sale owner right now is the part of the negotiations that allow the bank to come after you for 6 years for any deficiency.
Now, I am not going to lie to you and say this is not true, because in some cases it is. It all comes down to what the bank is willing to do. Sometimes the acceptance letter will release the right for the bank to seek the deficiency. Other times it will not be mentioned, if it is not mentioned, they (the bank) has not released this right.
Because every seller is under a different circumstance please talk to an attorney. These guidelines are changing rapidly and can work for or against you. You are the only one that can decide if a short sale is right for you. If it is, I would be happy to assist you.