Two years ago, my mother-in-law deeded a few small pieces of property she owned to her sons stating she no longer wanted the tax burden and wanted to live out her years traveling. One of the pieces had a small house that she quit-claimed to us. The house was once paid for and we had to initiate a home loan for the remaining $90,000 of an equity loan she had taken out to pay for her traveling. The title was transferred to our names like any other home purchase and we have been living there ever since. She is now out of cash and has demanded we take out a second on this house because she needs the equity she feels she is entitled to. (The house is currently only worth $125,000.) We told her we could not afford to do this right now. She has mentioned taking us to court to force the sale of this property. California has some strange laws and we were wondering if she could possibly do this after a quit claim. Please help!

No, she sold you the house, she can take you to court of course, but a quitclaim is just as legal as a warranty deed, only without the warranties.
Sounds like there won't be no family dinners at her house this year.

I can't imagine she will be able to do anything, it is your property now, she gave it/sold it to you quite legally, its her loss! What a selfish lady!