Do people have to fork $ upfront if their home is sold at a loss?

If a seller sells for less than what is owed on the property, and it is not part of a short sale already negotiated with the lender, her/she will have to pay off the remainder of the loan out of pocket. It is possible that the seller get the money by finding a personal loan from the bank, but the loan would have to be secured by some other asset than the real estate in question. The bank will not do it automatically. If the seller simply can't find the needed $5000 (in this case) the sale can not occur

The current mortgage must be satisfied in order for the sale to close, so yes the seller would need to have $5000 in hand at closing. Where the seller gets it from, the bank that holds the mortgage will not care. Its very unlikely that it will loan you the money to pay off another loan you've received from it.

There are actually 2 questions here.

if you are 5000 in the hole at settlement, you will need to bring a bank check for the FULL amount owed.

However, you should be able to get a loan from ANOTHER bank to cover this.