To open a LN channel, both parties puts their funds in an address that can only be spent if both parties agree (both have to sign)

But the way this swap happen trustlessly between onchain and LN channel funds it's complicated, I don't have it clear right now

If you want to get an idea how later the balances updates happen trustlessly see my other comment https://news.ycombinator.com/item?id=27451184

Other person node who would lose money if this happend can publish the original transaction that is construscted in a way that the attacker would lose all his funds.

So attacker could potentially do this but if they get caught they get punished for losing everything and they get caught if the other side node is online when this happens. There are also watchtowers that can monitor the network for hacks like this

The coins are essentially allocated to being on the lightning network, and cannot be used on the blockchain until the two are synced up.