It sounds like you need legal help. An attorney would be able to advise you of your status and rights.
Foreclosure normally wipes out debts that are junior to the foreclosed note where the property secures the lien. For example, if a property is foreclosed by the second lien-holder, the first lien remains intact and the conveyance is subject to the first mortgage. Say a homeowner's association foreclosed for non-payment. Generally, their claims are subordinated to the first and second liens and so the new owner after foreclosure would be required to pay those off.
When your first mortgage is foreclosed, then mechanics liens, any junior mortgage liens, including a second mortgage lien, are wiped out. Whether the mortgage insurance company has any claim against the borrower for unpaid balances is a separate matter, but the lien itself is gone. There have been many stories about junior lienholders issuing a charge-off against the credit report of the borrower for the unpaid amount, but this is the first time I have heard of someone trying to collect on that charge-off.
It sounds like you need to consult an attorney who specializes in that area to advise you. After all is said and done, you may be forced to file bankruptcy to clear off a debt that persists after foreclosure of the property.
http://www.mortgageqna.com/second-mortgage/foreclosure-on-a-…
as is mentioned here.

Chances are you are still responsible for it. That's the unfortunate situation. Probably doesn't feel right, but that's the process. Of course it will depend on what was owed and what the sales price was. I'd guess you can hold them off for a while and try to negotiate some type of settlement and/or payment plan. That's best for them and you....but if they are threatening to sue you, you can always tell them you will file bankruptcy if they sue and then they'll likely get nothing or stand in line with your other creditors.

First talk to a lawyer to see if you are responsible for the payment of the second mortgage to the mortgage insurance company. If you are, then try to arrage an affordable payment plan with the collection agency. If you are responsible for repayment, you want to avoid court, as the judge may garnish your wages, and judgements against you don't look good on your credit report ( you may not care much about this at this point with the forclosure and all, but at some point you may want to borrow money again). Good Luck