I agree with the others you should consult an attorney. However, I will throw in my 2 cents. I agree it’s not such a good idea being emotionally attached to a property. That being said, it sounds like you also live in it.
My feeling is it’s never a good idea to use retirement savings if you don’t have to but in this case it doesn’t sound like you have too many alternatives right now.
I’m not sure what your relationship is with your ex-wife but even if it’s not good, my feelings are you should pay her parents back the loan. After all, they helped you out in your time of need and helped you get the home. This isn’t like some faceless bank loaned you the funds to buy the place where you lived with your ex-wife. For all intent and purposes, this was your FAMILY.
It’s your decision to be emotionally attached to the property but I think in that situation, you should pay them back without having them jump through hoops, or get a ton of lawyers involved. It doesn’t sound like you’re in the situation to waste a lot of money on legal bills right now anyway.
Put yourselves in the shoes of your in-laws. I sure wouldn’t want to wait 2 more years. You never know what will happen in 2 years. You hope prices go up, but they could continue going down. You could lose your job, etc. etc.
In your divorce agreement, you agreed to the terms of getting this property under your own name and refinanced. So it’s not like “they want you out on the street”. They just want their money that they graciously loaned you while you were married to their daughter. They did a good thing/gesture helping you out. Something that I think would be wise to remember. Put yourself in their shoes.
Do the right thing and pay them back for heaven’s sake. People tend to have a one way memory or way of thinking. The reality of the situation is probably that when you got married and couldn’t quality for a loan on your own, they helped you out (when you might have been “out on the street”).
My guess is you already asked your divorce attorney and he said to pay it back as it’s the right thing to do. But you’re still looking for other opinions until you hear what you want to hear.
You shouldn’t have agreed to refinance the condo in your own name if you weren’t prepared to follow through with that agreement.
