What was your goal? (shortsell the house and reduce credit damage?).
Whether its a shortsale or loan mod, has your property lost so much value that the negotiators are not releasing the sale? Or is it a second loan issue?
If you provide just a little more information, I will be able to point you in the right direction.
However, it does seem that you might as well stay in the house (for free) until some resolution or foreclosure has been finalized. If your credit is damaged...
You should have filed for bankruptcy while you were unemployed.
That being said, you may still qualify for bankruptcy chapter 7 if you have dependents etc.
$9k is a significant portion of your income. I would recommend discussing (with an attorney), debt negotiations or bankruptcy Chp. 13. These options will both allow you to maintain your necessary day-to-day living income, while dealing with your outstanding debts.
No they do not. Debt Collectors can often be entities/people who purchase debt from the original lender for a discount and try to collect. Along those lines, all you need to know is the return address on that certified letter.
You may have a great FDCPA case, be sure to contact an attorney. You could waste a lot of time trying to clear this up on your own, but I would recommend filing a suit. An attorney may be able to win money damages AND get this cleared up for you all at once.
You'll need to run an asset search for other items of value. SSI cannot be garnished.
Unfortunately, this person may be judgment proof, but do the minimal due diligence in case they have separate savings etc.