Hi - my name is XXXXX XXXXX I'm a litigation
attorney. Thanks for your question.
Yes, the second lender CAN foreclose the property if the loan
goes into default. The only catch is that if the second lender forecloses, it must take the proceeds from the sale to pay off the first loan BEFORE it can recover any money for itself. Because there usually isn't any equity properties (because of market values), it's usually not to the lender's advantage to foreclose a all it would be doing is working to recover money for the first lender. So, unless there is enough equity in the house for the second lender to pay the first and have something left over, it's not likely that the second lender will foreclose .
As for the account balance, it would be the principal amount plus all accrued interest and late fees and attorney's fees. Thus, the balance could be exponentially more than the principle balance. The bankruptcy doesn't freeze the account or place it on non-accrual - - - the debt continues to gain interest and fees.
Under California law, the lender has 60 years to sue on a Deed of Trust, so there's not likely any chance to wait out the lender because the statute of limitations
is so long. Thus, if you want to try to settle the debt, an offer to compromise and settle the debt would have to be made by the borrower/debtor in order to resolve the matter short of foreclosure