"The facts surrounding your case should be examined to see if the doctrine of equitable merger applies. First, is the current holder of the evidence of debt on both the first and second mortgage the same? If it is not, equitable merger will not apply. If the holder of the evidence of debt on the first and second mortgage is the same party, equitable merger may apply.
"Equitable merger usually applies when the foreclosing party has two or more deeds of trust and the foreclosure action is on the junior lien (second mortgage). But what about foreclosure on the first mortgage only? There’s a very interesting case with fairly broad language:
A merger ordinarily occurs only when it is intended by the parties. However, a merger can also be presumed when equity demands. The general rule with respect to equitable merger is that when the value of the property is equal to or exceeds the debt represented by the mortgage, “justice would demand and equity presume, a merger.” Centennial Square, Ltd. v. Resolution Trust Co., 815 P.2d 1002, 1005 (Colo. Ct. App. 1991)."