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.
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