Quick overview
A partial claim is a targeted tool for FHA-insured mortgages that helps homeowners bring a delinquent FHA loan current without an immediate lump-sum payment. The lender (or servicer) advances the missed payments and related costs into an interest‑free subordinate claim — essentially a zero-percent junior loan — that is collected when the property is sold, refinanced, or otherwise paid off. HUD administers the partial claim program; see the HUD/FHA partial claims page for official program details (HUD).
This article explains how partial claims work, who qualifies, how they differ from other relief options, real-world scenarios from my practice, tax and credit considerations, and practical next steps.
Sources: HUD/FHA partial claims program (U.S. Department of Housing and Urban Development) — https://www.hud.gov/program_offices/housing/sfh/np/partial_claims
How does a partial claim work in practice?
A partial claim is a servicer-administered remedy for FHA loans that are delinquent but not yet in final foreclosure status. The main steps are:
- Early outreach and analysis: The servicer evaluates the borrower’s hardship and the loan’s eligibility for a partial claim under FHA servicing rules.
- Documentation: The borrower provides hardship documentation and financial information. This can include pay stubs, a hardship letter, bank statements, and other materials the servicer requests.
- Approval and advance: If the loan meets FHA criteria and the servicer approves, the servicer advances an amount that covers the missed mortgage payments, escrow shortages, and allowable fees.
- Creation of the partial claim: The servicer secures the advance as a subordinate (junior) lien or lienless promissory note per HUD guidance. The partial claim typically does not accrue interest and is not payable until the loan is satisfied through sale, payoff, or refinance.
- Borrower resumes regular payments: With the default cured, the borrower resumes making their regular monthly mortgage payments under the original note terms.
Typical timeline: Processing varies by servicer, but if paperwork is complete the process commonly takes a few weeks. Complex cases or cases requiring bankruptcy coordination can take longer.
Note: A partial claim is separate from a forbearance agreement or loan modification. For a clear comparison of relief choices, see our explainer on forbearance and our look at loan modification options.
Internal links: See our articles on FHA loans and what a forbearance is for further context:
- FHA Loan — https://finhelp.io/glossary/fha-loan/
- What is a Forbearance? — https://finhelp.io/glossary/what-is-a-forbearance/
Who is eligible for a partial claim?
Eligibility requirements are governed by HUD’s servicing rules for FHA-insured single-family mortgages. In general:
- The mortgage must be FHA-insured (Title II forward mortgages). Borrowers with conventional, VA, or USDA loans are not eligible for an FHA partial claim; those loans have different relief tools.
- The loan must be delinquent but not in a final foreclosure judgment or deed-in-lieu/short sale status. Servicers follow HUD guidance to determine the allowable window for a partial claim.
- The borrower must demonstrate a temporary financial hardship (job loss, illness, short-term income disruption) and the ability to resume regular payments after the partial claim brings the account current.
If you have a non-FHA mortgage, look into alternatives such as loan modification, forbearance, or other loss-mitigation programs. Our overview of FHA foreclosure avoidance options can help FHA borrowers and servicers explore alternatives: https://finhelp.io/glossary/fha-foreclosure-avoidance-options/
What the borrower signs and how repayment works
When a partial claim is approved, the borrower typically signs documents acknowledging the subordinate claim. The practical repayment mechanics:
- The partial claim is usually interest‑free while outstanding. HUD rules have historically allowed zero percent interest on the partial claim balance.
- The partial claim becomes due and payable when the mortgage is paid off by sale or refinance, or if the borrower otherwise pays the FHA-insured mortgage in full.
- The partial claim may remain as a junior lien recorded against the property or be evidenced by a note in servicer records depending on HUD/servicer procedures.
Tax note: Because a partial claim is treated as a loan advance (not income), it generally is not taxable as income at the time of the advance. If a partial claim were ever forgiven (rare), there could be tax consequences; consult a tax advisor. This is educational information, not tax advice.
Why a partial claim can be helpful — pros and cons
Pros:
- Immediate foreclosure prevention: It brings the mortgage current quickly, stopping foreclosure in many cases.
- No immediate repayment: Borrowers aren’t required to make a lump-sum catch-up payment.
- Often interest-free: The partial claim generally does not accrue interest while outstanding.
- Preserves homeownership: It’s specifically designed to keep borrowers in their homes when the hardship is temporary.
Cons and trade-offs:
- A junior claim against the property: The partial claim remains attached to the home until payoff, sale, or refinance, which can complicate future refinancing.
- Limits on refinance: Because the advance becomes due on payoff/refinance, borrowers can face barriers to refinancing until they can satisfy the partial claim or meet FHA/market refinance rules.
- Not a permanent reduction: A partial claim is not loan forgiveness; it doesn’t reduce principal permanently.
How a partial claim differs from other mortgage relief options
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Forbearance: Forbearance temporarily suspends or reduces payments for a set period; the borrower typically must repay the missed payments after the forbearance period (lump-sum, payment plan, or modification). Partial claims directly advance funds to cure the delinquency and create a subordinate claim. See our forbearance explainer: https://finhelp.io/glossary/what-is-a-forbearance/
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Loan modification: A modification permanently changes loan terms (rate, term, or principal in some cases) to make payments affordable. Partial claims do not usually alter the original loan terms; they add a subordinate obligation to cover past amounts.
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Repayment plan: A servicer may offer a repayment plan to spread missed payments over time. A partial claim is often preferable when the borrower cannot make increased monthly payments but can resume regular payments after the cure.
Real-world examples from practice
In my 15+ years advising clients, I’ve seen partial claims work best when the hardship is demonstrably temporary. Example:
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Case A: A borrower experienced a several-month job interruption and missed six mortgage payments. They qualified for a partial claim because they had a documented job offer and stable prospects. The servicer advanced the missed payments and escrow shortage as a partial claim; the borrower resumed monthly payments and later refinanced after regaining higher income.
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Case B: A borrower without documentation of recovery prospects was directed toward a loan modification instead, because a partial claim requires reasonable assurance the borrower can sustain regular payments once current.
These cases illustrate that partial claims are a bridge — not a cure-all — and work best when paired with a realistic, near-term plan to restore income.
Common misconceptions
- “Partial claims forgive debt”: They do not. The advance is a subordinate claim that remains until payoff.
- “Any mortgage qualifies”: Only FHA‑insured mortgages are eligible for HUD’s partial claim program.
- “Partial claims hurt credit more than alternatives”: A partial claim itself is a cure mechanism; the borrower’s credit outcome depends on timing and whether foreclosure was already reported.
Practical steps if you’re behind on an FHA mortgage
- Contact your servicer immediately and ask about partial claims and other FHA loss-mitigation options.
- Gather documentation: hardship letter, income proof, bank statements, and relevant bills.
- Consider alternatives and long-term plans: modification, forbearance, short sale, or deed-in-lieu if recovery is unlikely.
- Seek counseling: HUD-approved housing counselors (list on HUD.gov) and certified mortgage advisors can provide free or low-cost guidance.
Tax, credit, and refinance implications
- Credit: Bringing the account current with a partial claim can stop additional late reporting and foreclosure activity, which is generally better for credit than allowing a foreclosure to proceed. However, past delinquencies already reported remain on credit history.
- Refinance: A partial claim becomes due on payoff or refinance and so can complicate — but not always prevent — a refinance. Lenders must be informed and underwriting must address the subordinate claim.
- Taxes: The advance is generally not taxable income since it is a loan advance; consult a tax professional if any portion is forgiven in the future.
When a partial claim isn’t the right option
If your hardship appears long-term or permanent (chronic unemployment, long-term disability), a loan modification or other remedy may be more appropriate. Also, if you hold a conventional or VA loan, those programs have different relief tools.
For FHA borrowers, compare alternatives at our FHA foreclosure avoidance page: https://finhelp.io/glossary/fha-foreclosure-avoidance-options/
Final advice and disclaimer
In my experience, the best outcomes start with early, documented communication with the servicer and realistic planning. If you’re FHA-insured and facing a temporary setback, ask your servicer whether a partial claim is available and how it would affect your long-term goals.
This article is educational and not individualized legal, tax, or financial advice. For decisions specific to your situation, consult a HUD‑approved housing counselor, a mortgage professional, and a tax advisor. For official HUD guidance on partial claims, see: https://www.hud.gov/program_offices/housing/sfh/np/partial_claims
If you want, I can help draft a short checklist to take to your servicer or a sample hardship letter tailored to a partial claim request.
