Except for a very narrow circumstance in which an 80-20 loan was used to purchase the house (and when there is NO refinancing), you are still liable to for the debt on the 2nd. it does not matter that the lender "charged off" the 2nd; the debt still remains.
Therefore, your obligation to pay remains. What might be an issue at this point is whether the lender sold the 2nd to a third party (which is quite common).
If you do not settle and resolve the debt on the 2nd (and do no file for bankruptcy to discharge the debt), then eventually, the 2nd (or its assignee if sold to a third party) can sue you to collect it. Once it/they have a judgment, they can garnish your wages,levy your bank accounts, and implement other procedures to enforce the judgment.
The information presented here is general in nature and is not intended, nor should be construed, as legal advice. This posting does not create any attorney-client relationship with the author (who is only admitted to practice law in the State of California). For specific advice about your particular situation, consult your own attorney.
You owe some entity $28k. If this collection agency can prove that it has the authority to release you from the obligation, then an $8k settlement is not bad. But the odds are that is does not have the "note" where you agreed to pay, and cannot cancel it. That is what will protect you from further claims. They prove they have the note; offer you a settlement in writing; you pay; and it sends you the original note indicating paid in full. The forgiveness of debt will be a taxable event for you, so you would receive a 1099c for $20k that will have to be added to your income and you will have to pay tax on it. Bankruptcy will eliminate this claim and the taxation issue, so you should consult with a bankruptcy attorney who can advise you on this.