can my mortgage lender force me to exhaust my 401k when dealing with any sort of loan mod and or short sale

When you entered into your mortgage loan agreement, you signed a Note promising to pay the loan back at a specified rate of interest and according to a specified schedule.  You also signed a mortgage which assured the lender that you would discharge your obligation under the documents in a timely fashion - otherwise the lender could foreclose the loan and take the property in substitution of your scheduled payments.  If you have defaulted on your payments (that is, failed to make timely payments according to the schedule), you don't have very many options.  The question becomes, "how bad do you want to keep the property?"  Your lender could simply foreclose and give you no chance at all to keep the property.  If the lender has offered a work-out arrangement to allow you to keep the property if you make "catch up" payments in some way, it is up to you to decide whether it's worth it to you to do that.  If the only way you can make the catch-up payments is to access your 401 K Plan, then that is your choice to do so.  It is also your choice to say "no".  In such event (if you can't raise the money some other way) the lender will almost certainly foreclose.  You are encouraged to confer with competent real estate counsel if it appears a foreclosure is going to occur.  If the lender loses money on the foreclosure, there is a possibility that it will sue you on the Note to recover its loss.  Deciding to allow a foreclosure to occur when there is some means to avoid it does involve some risk.      

Loan modification application forms typically require you to list your 401K as an asset and then the lender typically pressures you to use your 401K funds toward the loan.  Notwithstanding this pressure from the lender, you can make a very strong argument that the lender cannot force you to exhaust your 401K because under Nevada law the first $500,000 in a pension fund is exempt from collection.  That means if someone gets a judgment against you, they cannot force you to liquidate your pension fund to pay off the judgment.  In the loan modification situation, the lender is probably facing the choice of modifying the loan (and hoping that you'll stay current thereafter) or foreclosing on the loan (because without a modification, you'll default).  If the lender had to foreclose, he could file a lawsuit against you for the deficiency.  If he got a judgment against you on the deficiency, he could not use it to get at the first $500,000 in your 401K because of the exemption.  Therefore, he should not take it into account with the loan modification.  However, no lender is required to grant you a loan modification--you are requesting a change in your contract, and that requires the lender's agreement.  He is not obligated to agree.  So, the lender can impose such conditions on the loan modification as the lender elects, and the lender might try to require money out of your 401K as a condition because, after all, you might agree to it, in which case the lender makes more money out of the deal.