Fortunately we had some capital left, we don't owe anyone anything (including internal debt).

A Partial pays you principal and interest back at that desired rate.

If you ask a tax man if you owe taxes . . .

At some point, could be years down the road, you need to start paying principal on the HELOC.

For the last 2 years taxes have been owed on the home.

So yes, the trustee controls the security instruments final outcome but the dirt itself was deeded away and the fraudulent conveyance thing is a stretch in the real world because presumably there was no fraud.I agree in principal with what you're saying but it's not with a wave of a wand  this mans deed can be rendered null and void because some guy filed BK.

@Dmitriy Fomichenkois the principal.

We currently rent in CA, but want to buy a place so that we begin to pay down principal, accrue tax benefits, and lock in a monthly housing payment in a rising rental market. 

Also, since the money was used to improve the property, can we continue to expense the interest if we don't have to pay the principal balance back even though it will no longer be our primary res?

I could live there for a few years on my own or with a tenant/roommate and pay down the principal, move out and then start renting out the entire unit as a rental with yearly tenants on a lease or on Airbnb (If the condo board allows it.