Without disputing what others said above about the fishiness of deed of trust, and that it has to be challenged/voided in court, I have to say that so far everyone missed one important point.

What exactly is the language of the divorce agreement where you agree to refinance the condo?

Also:

Are your ex-in-laws aware that the property was appraised for 340k?

Do they fully realize that, in the event that they go through with foreclosure and try to sell the condo, they’ll have to pay off the first loan, the lawyer, the realtor, property tax, mello-roos, HOA, etc. etc., and in the end they’ll end up getting 170k (if that), whereas allowing you to keep paying will improve their chances of getting full 200k?

If they are concerned about getting something rather than nothing, would they be open to an agreement where you somehow refinance, say, 150k out of their 200k:

– Right now you owe 135k to the bank and 200k to them;
– Instead, you get a new mortgage for 272k, they get 137k from the new lender and 13k from your savings, and they get a secured note for the remaining 50k at 6% for 10 years. (Since you expect to be able to save 25,000 in 2 years, you could, in principle, pay off that note in 4.)

This would involve some nontrivial loan juggling by the mortgage broker (I think), but in the end everyone should be better off.