Thanks for the chance to help. I am an attorney with over 12 years experience. Hopefully I can help you with your legal question.
This is a tough one...that is, your recourse here is limited at this point.
As the guarantor of the loan, if the loan defaults, the lender could come after you (as the guarantor) and seek payment from you. If this happens, you would then have a cause of action against both the fiancée and your son. But so long as the loan is current, and the creditors are not demanding you pay, you would not be able to take legal action against either party.
Now...I understand the dilemma. Your son is trying to save his credit (and the home) and you want to to help your son and protect your assets.
And you are correct...
"the aprox $40k underwater is half her responsibility if the house is forclosed."
That is true.
Though practically speaking there are many ways this can resolve and several would not present her with a $20K
For example if the home forecloses (assuming you do not step in and pay the note to protect your credit and assets), the lender may choose not to pursue a deficiency judgment against the fiancee. IN fact, it is likely they would not. Deficiency judgments are rare today...more common the lender simply acknowledges the debt with a 1099 form and moves on.
So it may be the fiancee is assuming that will happen.
But the other possibility is that the loan is in default and you, as the guarantor, step in to make it right. In such a case you would be able to seek reimbursement from BOTH parties, jointly and severally. SO you could, for example, seek the entire amount from her.
So that may be the way to approach this...you let her know, ideally with a letter from your lawyer, that if she does not cooperate you will be forced to step in and take possession of the home, and that you will sue her for the damages
you incur. It may be this convinces her to assist your son. In such cases, a letter from a lawyer can have a powerful impact. They are called a "demand letter" and many lawyers will write one for a nominal fee (an hour at their billing rate).
I would consider having a local attorney draft and send her a demand letter...that may get her to step up and assist