short sale / foreclosure (Arizona)

We live in AZ. The value of our primary home is about 1/2 of what we owe. We are still current on our payment but we are concerned about being able to keep on top of it. If the bank does not qualify us for loan modification, we might have to short sale or foreclose if that also does not work.
Will we be required to pay the difference after the short sale? What if it was foreclose? Is a deed in lieu different than foreclosure?
How will that affect our taxes? 1099?
What about the HELOC? Will that be converted into a different kind of loan? If yes, will we be required to pay % of the heloc not the full amount over a number of years? What is a non recourse state? Does that apply to both primary and rental (investment) property?
Will they go after our income, 401, or our rental property (tenant only pays half of our monthly mortgage because we refinanced that one before to 15 yrs and since we owe more than it is now worth, we can"t refinanced that one too).
Will/Is there usually a lawsuit involve? If yes, what is the usual fee that a lawyer would charge to represent us?
Please help...

see

Arizona's 'non-recourse' foreclosure law