What's the best option for resolving a balloon payment on my second mortgage?

I filed for Chapter 7 BK and was discharged after a stressful 1-1/2 years of negotiating a modification with my 1st mortgage - done without reaffirming the debt.

The 2nd mortgage with another lender insisted I reaffirm the debt before they would negotiate. My BK attorney offered no assistance so, without any guidance or professional insight, I reaffirmed the 2nd.

My balloon payment on the 2nd is now coming due and I can't afford it. The value of the home (in CA) is $20K shy of what I owe on the 1st. The outstanding balance on the balloon payment is $63K.

I'm currently in talks with my 2nd mortgage company. I'm dealing with their modification dept. If they can't help, I'll be referred to the "balloon payment problem" dept. If THEY can't help, I'll be referred to the settlement dept.

I'm starting to wonder if it'd be in my best interest to turn down any modifications or balloon resolutions on the 2nd and take a chance at settling the debt. If home prices continue at the current trend, I would likely be able to break even on both debts in 4-5 years.

So I ask:
1) Does the 2nd mortgage retain junior lien status even though the 1st was modified? If so, I'd assume they'd be willing to negotiate in lieu of foreclosing since they'd get no money from the sale.

2) Being within a few years of potentially breaking even on both loans, would my 2nd mortgage lender be less likely to negotiate at all and instead decide to foreclose?

Thanks for any insight you can provide!
Added (1). Also, if the debt gets settled for less than what is owed, would I still retain the property?

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