What protocol/type of application is this for? Have you done something like this before?
I'm trying to work out the layer2/3 logistics of what you're describing.
It sounds like you'd want LTM to answer an ARP request for 10.10.10.20 and then check the state of server1 which is also answering for 10.10.10.20. If it's up, then send the request to server1. If server1 is down, then you'd want to check the state of server2. If server2 is up, then you'd want to translate the destination MAC address of the request and send it to 10.10.10.20 using server2's MAC address. Finally, if server1 and server2 are down, you'd potentially want to take some default action like send a reset back.
I'm not sure how LTM would be able to identify server1 and server2. I guess you could hardcode ARP entries for two dummy IP addresses and add these to the pool (1.1.1.1 MAC: 00:00:00:00:00:01 priority 100 and 2.2.2.2 MAC: 00:00:00:00:00:02 priority 10, assuming these MAC addresses were the real ones from server1 and server2). You could then create a VS on 10.10.10.20 with destination address translation disabled.
It's been forever since I tested a layer 2 bridging implementation. I'm not sure if you'd need VLAN groups for this or not. I'm also not sure whether the above description would work or is optimal.
Citizen, are you out there? Can you make sense of this? :D
Thanks,
Aaron