Unless a home lender agrees to a short sale--that is, agrees to take less than full payment as payment in full--the lender may proceed against the home owner for the remaining balance due under the loan. Therefore, in the situation you describe, if the lender who provided home equity financing (from the way you write, I assume you have actually used $40k of the HELOC) does not agree to the short sale, the lender could then go after you for the remaining balance, or $30k. They could sue you for that amount. Since you propose only paying the HELOC lender $10k of $40k, or 25% of what you owe, there would have little incentive to agree to the short sale, and much more incentive to proceed against you for a deficiency judgment. If you can't work something out with the lender, you may wish to consider bankruptcy as an option; you should consult with a bankruptcy attorney about your situation.