Homeowner with 2 mortgages suffers a financial setback and can't make the required two payments. Homeowner pleads case to first mortgage lender, who agrees to a reduced payment schedule for a specified period. Homeowner stops paying on the second mortgage, on the erroneous assumption that so long as the first mortgage remains in force, there isn't anything the second mortgage lender can do about it. Second mortgage lender crosses up homeowner by purchasing the first mortgage, acquiring the right to foreclose in the event the borrower fails to pay as stipulated in the forbearance agreement. With the property value high enough to cover both mortgages, the lender holding both mortgages now has a powerful incentive to foreclose because that is the only way to get repaid on the second mortgage.
Homeowner is a day late on the payment and the blade falls.
Had the homeowner sold the house and repaid the mortgages, she would have retained the residual equity in her property and her credit rating. But of course she would have lost the house. If she had kept current on the first mortgage but stopped paying the second, she would have hurt her credit rating, but might have retained the house. In this scenario, there would have been no reason for the first mortgage holder to sell. Pressing the first mortgage lender into a forbearance arrangement, while stiffing the second mortgage lender, was the riskiest course of action.