2nd mortgage in collections

We purchased a condo for my handicapped sister-in-law and elderly mother-in-law to move closer to our home. Prior to them selling their home to pay for the condo, my mil had a long battle with lung cancer and has now passed away. Their home is now in a trust and will be taking care of handicapped sil. We paid the mortgage and down payment from our equity line for 1 year and could not get any more increases on heloc so I called the lender and asked for options. We were told sorry , can'y help you till you are 3 months behind. Had an attorney send a request for short sale or deed-in-lieu. Stopped paying as of October2007. foreclosure scheduled sept 16th. We are being given collection notices on the 2nd and not sure if this is the way it usually works. The 2nd is also with the same co. Washington Mutual. If the sheriff sale happens, do they still attempt through a collection agency to get the remainder of the debt paid? the property has been vacant and on the market since the day of closing. :? We live in Illinois and would love any help you can offer.Bankruptcy was not our plan but if in future I will be hit with more collections or liens, I don't want to lose my home for doing a good deed that went really wrong.