Tempie,

You stated in your original post that the home was sold.  Has the sale closed yet?  If so, I think it's too late for that borrower to encumber that property.  If they purchased a new property, I suppose the lender could ask them to execute a mortgage encumbering the new property.  If that's the case then the original (lost) deed of trust should not present a problem for the borrowers.  As Robert said, a new deed of trust will not create new debt. 

I think the best advice you can offer your borrowers is to contact their attorney for advice.