Homeowners with FHA-insured loans may be able to avoid foreclosure by making a “partial claim” to get their loan out of default.
Your lender may be able to work with you to obtain a one-time payment from the FHA-Insurance fund to bring your mortgage current. Your loan must be FHA insured.
Because FHA borrowers pay an annual mortgage insurance premium equal to about 1 percent of the original loan amoun, they are entitled to a partial claim to avoid foreclosure.
The money is pooled into an FHA insurance fund, which HUD draws from to pay a partial claim. The lender may file a partial claim for the amount needed to bring the loan current. The lender may not include late fees in the partial claim amount.
Keep in mind, the lender may charge legal costs associated with any pre-foreclosure proceedings.
How to qualify for partial claim
Hud has specific eligibility guidelines for partial claim.
- Your loan is at least 4 months delinquent but no more than 12 months delinquent.
- You are able to begin making full mortgage payments after the claim is paid.
- The lender is required to waive any late fees that have accumulated.
- The borrower must agree to partial payment of an FHA insurance claim (the insurance guaranteed the loan to the lender), and waive any pre-payment option the borrower may have had of the insurance premiums on the balance of the loan.
Notify your lender
Notify your lender of your financial hardship to begin the partial claim process. The lender will analyze your finances to determine that you don’t qualify for HUD’s Special Forbearance Program, which temporarily reduces or suspends payments, or a loan modification that allows you to change your loan terms. The lender submits the partial claim request to HUD, which then provides a notification of partial claim approval to the lender if you qualify.
Partial claim repayment
HUD must be repaid for the partial claim it paid to the lender on your behalf. HUD secures its repayment by placing a lien on your home. The lien is paid in full when you pay the FHA loan off through a refinance, sale of the home, or when you convey ownership to someone else. HUD requires you to sign an interest-free promissory note for the partial claim amount.
In the event the borrower defaults after using the partial-claim option, the lender can either foreclose on the home or do a loan modification. The partial-claim loan is made subordinate to the modified loan with its new terms of repayment. HUD will enforce collection efforts if the borrower fails to repay the partial-claim loan.
The borrower must repay the partial-claim loan with a lump sum payment. If the borrower is more than 12 months behind on the mortgage, then he must come up with the funds to make up the difference between the 12-month maximum partial-claim loan and the overdue amount.
Partial claims are sometimes completed along with a loan modification.
FHA HAMP is designed to help FHA-insured borrowers who meet HAMP eligibility requirements to avoid foreclosure by permanently reducing their monthly mortgage payment through the use of a partial claim. The partial claim defers the repayment of mortgage principal through an interest-free subordinate mortgage that is not due until the first mortgage is paid off.
Under the partial claim option, lenders are authorized to advance funds on behalf of a borrower, to reinstate a delinquent loan. HAMP will allow HUD to bring eligible FHA borrowers’ payments down to an affordable level. This will be accomplished by bringing the mortgage current, buying down the loan by up to 30 percent of the unpaid principal balance and deferring these amounts in a partial claim.