Answered on Feb 28th, 2011 at 2:49 PM
Generally the value of the house has to be less than the balance of the first lien (first deed of trust). All that was discharged in the Chapter 7 was the personal liability of the wife to pay the second. She does not need to worry about having to pay the second loan if the house is sold in foreclosure or there is a short sale. However, the lien is not removed or stripped in Chapter 7. The house is still subject to the lien for the balance of the second or junior deed of trust which secures the note for the second loan.
It sounds like in her case it would be impossible to remove the lien for the second loan since she thinks she might have some equity in the property. The second loan will have to be paid in full for her to be able to sell the house or the second loan holder has to accept less than what is owed in a short sale (in which case she would get nothing out of the sale).