In this scenario, there is no obligation to pay anything more.Your homework is to connect with the operator/sponsor and ask about the waterfall payouts and to secure a copy of the operating agreement.Good luck.

And repeat this if it is an FHA loan, it has to go through a waterfall process of loan modification to decline first, before applying for the short sale.  

Are they pro rata or are there complicated distribution waterfalls, etc.?

The Cascades are named that because of the waterfalls.

Value Add properties, which means they all require some level of upgrades to maximize rents.Sophisticated investors seem to like the Waterfall Equity Split like you described...but the average investor finds it complicated.  

Having a multi layered waterfall is another option over a straight profit split which is also more typical of a syndicated deal.

The way I see it is the bank is 1st lien through $450k and my ~$70k from the renovations is next in the waterfall.

You might see a 20% split to the sponsor and 80% split to the rest of the investors...it can be 25/75, 30/70, 40/60...there can also be "waterfalls" wherein the promote split might at 20/80 up to a certain IRR, then goes to 30/70 at a higher IRR and then goes to 40/60 at an even higher IRR.

Then you would waterfall the equity split of/if anything is left over. 

I would need to see the full waterfall to know for sure but it sounds like the pref is trailing off when some milestone is reached.