Did both parties pass away. Your question is a little unclear. Say Party #1 is the person that you said signed the deed (so their name is on the deed) but she did not sign the loan documents so the loan is not in her name. Now Party #2 is the borrower and they stopped making payments. A) are both parties deceased? B) was the loan taken out to purchase the property or was it after the property was already owned by 1 & 2? Your best bet is to contact a good real estate attorney. They will need to see the deed, loan documents, and both wills if both parties are deceased. Of course some of this is depending on who died first. Sorry to not be able to give you a concrete answer but you are crossing over to matters better suited for an attorney. If you need a referral to a good attorney in High Point just let me know and I can give you one.
If you need any other questions answered or need the attorney's contact info you can contact me through my profile here on Trulia or through one of my other websites listed below.
Hope this helps,