Legal Question in Real Estate Law in California

Idaho law will probably govern the lender's rights and your liability. The law regarding formerly secured junior lenders who lose their collateral through a senior lender's foreclosure is likely to vary significantly from state to state. If California law controlled, the junior lender would probably be deemed "sold out" and its claim against you would become (a) unsecured, but (b) not subject to any of the anti-deficiency provisions of California law (there are exceptions). You should re-ask this as an "Idaho" question, or retain an attorney licensed to practice in Idaho. My hunch is that the settlement offer is a good one, but I do recommend state-specific attorney guidance before taking action (or failing to act) on it.

Whipple's answer is exactly right. If the property was in California, this would be a great settlement for you, since in California they could sue you successfully for the fulll $25K. But you need to double check with an Idaho attorney to be sure.

I would repost your question in Idaho's Lawguru section. Even though you live in California, the fact that the property was in Idaho means you are going to need someone familiar with foreclosure law in Idaho.