Partial Claim Agreement (FHA)
The FHA loss mitigation option that uses HUD funds to pay arrears as a junior lien — available only for FHA-insured loans.
A Partial Claim Agreement is a loss mitigation option available EXCLUSIVELY for FHA-insured loans. In a Partial Claim, HUD advances funds (up to 30% of the unpaid principal balance) to pay the mortgage arrears. The homeowner signs a Partial Claim Agreement and a Promissory Note in favor of HUD. No interest accrues on the Partial Claim amount, and no payments are due until the property is sold, refinanced, or the FHA loan matures — at which point the Partial Claim must be paid in full. The Partial Claim is recorded as a junior lien (subordinate to the first mortgage). It cures the default IMMEDIATELY — the loan is brought current without modifying the original loan terms. This is ideal for homeowners who: (1) had a temporary hardship, (2) have recovered sufficient income to resume the original mortgage payment, but (3) cannot afford a repayment plan (spreading arrears) because the arrears are too large. The Partial Claim is processed through the FHA loss mitigation waterfall.
Purpose
- 1Cure mortgage arrears using HUD funds (up to 30% of UPB)
- 2Bring the FHA loan current without modifying the original loan terms
- 3Provide a zero-interest, no-monthly-payment junior lien that is due at maturity/sale/refinance
- 4Allow homeowners who can afford the original payment to avoid foreclosure despite large arrears
Who Prepares It
The servicer prepares the Partial Claim Agreement and HUD Promissory Note. The homeowner signs both documents. HUD electronically funds the arrears directly to the servicer.
When It Is Used
Available for FHA-insured loans only. Used when: (1) the borrower has a temporary hardship that has resolved, (2) the borrower can afford the original mortgage payment going forward, (3) the arrears are too large for a repayment plan (≤ 12 months to cure), and (4) the total arrears do not exceed 30% of the unpaid principal balance.
Legal Effect
The Partial Claim creates a new debt (the HUD Promissory Note) secured by a junior lien on the property. The original first mortgage remains unchanged — the loan is simply brought current. The Partial Claim must be repaid: when the property is sold, when the first mortgage is refinanced, or when the first mortgage matures. No interest accrues and no monthly payments are due. If the homeowner does not pay the Partial Claim when due (at sale/refinance/maturity), HUD can foreclose the junior lien.
Common Mistakes
Homeowner Rights
Other Loan Modification & Loss Mitigation Documents
Loan Modification Agreement
The binding contract that permanently changes the terms of your mortgage — lower rate, extended term, principal forbearance, or other relief.
Borrower Assistance Package
The complete set of documents required by the servicer for a loss mitigation review — also called a Complete Loss Mitigation Application (CLMA).
Loss Mitigation Application (Uniform Borrower Assistance Form)
The standardized application form (Form 710) used to apply for mortgage assistance — the gateway document for all loss mitigation options.
Forbearance Agreement
A temporary agreement to reduce or suspend mortgage payments — distinct from a permanent modification and with important conditions at the end.
Repayment Plan
An agreement to catch up on missed payments by paying extra each month — spreading the arrears over time without changing the underlying loan.
Short Sale Package
The complete application to sell the home for less than the mortgage balance — the alternative to foreclosure that requires lender approval.
Deed in Lieu of Foreclosure Package
The application to voluntarily transfer the property title to the lender — avoiding a formal foreclosure process.
Foreclosure Mediation Packet
The comprehensive document package submitted for mandatory or voluntary foreclosure mediation — preparing this well can save your home.
Frequently Asked Questions
What's the difference between a Partial Claim and a Deferral?▼
A Partial Claim is FHA-only: HUD pays the arrears, and you owe HUD (a separate junior lien, zero interest, due at sale/refinance/maturity). A Deferral is for Fannie Mae/Freddie Mac conventional loans: the servicer defers (moves) the arrears to the end of the loan as a non-interest-bearing balance due at maturity/sale/refinance. Both cure the default without changing the original loan terms. Neither requires monthly payments on the arrears portion. The key difference: Partial Claim = a new junior lien to HUD. Deferral = an adjusted balance on the existing first mortgage.
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