When purchasing an 80/20 mortgage where the first is being auctioned, does the second get eliminated even if it has the same recording date??
Can you confirm that the loans are purchase money for your primary residence? ie these are the origional loans used to purchase your home and you have lived in the home. If so, California is a non-recourse state and the lender will not have a right to pursue a deficiency judgement.
With that being said, you should review the details of your specific situation with a professional (not a loan modification company looking for up-front fee) - There are tax implications (that will probably be in your favor in this situation) and future implications (ie by completing a short sale vs foreclosure) that will put you in the best situation for years ahead.
Feel free to call me or e-mail me at:
Bob Dalsimer, CDPE
PS - ask for the free report Short Sales vs Foreclosures.