[Legate of Amon Lanc]

Hi, Cirdan! And welcome to the 'Downs!

I believe (unless I am misled, but I think there are some references in rather obvious places, like perhaps Appendices to LotR, only would have to look them up, for which I don't have time right now, but you can check it also yourself, or maybe somebody else will post a quote) that it is stated somewhere that the war when the Balrog fled was the War of Wrath. It is true that him being the refugee who fled Angband during Valar's attack is a very interesting idea, which would make him an interesting character of a poor old lonely grandpa, but it is also much more logical that he would stay in Utumno during the period when Morgoth was away, or later return to him when he was back.

After all, all the balrogs and other servants of Morgoth have remained hidden in Utumno and around the place when he was in captivity. Durin's Bane would have to be quite an extreme individualist with a bad morale, no connections to others (that he would just bury himself while still hundreds of Balrogs were alive and well, and never attempted to go out to look for them, especially after Morgoth's return, seems most unlikely and weird). Also, after Morgoth had returned, I would expect the Balrog to feel it, and come running back to his former master (also thinking about this "awaiting a more evil hour" in the quote you provide), unless he really was this extreme individualist who was fed up with Morgoth and just sought for the first excuse to get away (but for what? To hide underground and sleep there for six thousand years?).

As for not attacking the Dwarves straightaway, the point was that Moria was not so big at that point when he came, or its halls and mines did not spread or reach so far: only after the Dwarves dug "too deep, too greedily", they stumbled upon the places where the Balrog rested. He was originally hiding in some different cavern system, close to Moria, but not so close. Why it had chosen this location is probably because it was sufficiently far away from former Angband, so he did not expect the Enemy's enemies to seek for him there, and he didn't care about the Dwarves probably so much at that point (they were still sufficiently far away, see above). If you asked why he didn't choose some "better" mountains, I would assume that Misty Mountains were quite well on the way: sufficiently far, yet not too far so that the journey will be tiring; also, they were sort of "natural obstacle" (remember, they were said to be raised as an obstacle even to Oromë's journeys, and back then they were still probably higher than in the Third Age) and the Balrog was maybe too tired to bother crossing them. And as for them having their inhabitants, it is really hard to find some mountains without Dwarves. He could have possibly continued to, say, the mountains of Mordor like Shelob did, but perhaps he was a bit too tired, or perhaps even somehow weakened, wounded, or something, after the War? That would also explain this "sleeping" period. There may be other good reasons too, however, I am sure.