Partial Claims

Partial Claims are promissory notes; an option that may be available to homeowners with a Federal Housing Administration (FHA) loan in default, to assist them in bringing their mortgage current.

Under this option, a lender basically advances funds to the homeowner as an interest-free loan that is guaranteed by the Department of Housing and Urban Development (HUD), using the property as collateral. The claims need to be repaid only after the first mortgage is satisfied or if the property is sold. This is just another option to avoid home foreclosure, but a homeowner must meet the following requirements:

• The loan must be in default for more than 4 months and less than 1 year.
• The homeowner must be occupying the property as hers or his primary residency.
• Homeowner must be able to prove that the hardship that caused the mortgage default is over and that he or she can now repay the loan making full payments long term.
• Homeowner should not meet the qualifications for a Forbearance Agreement.
• If the homeowner has filed for Bankruptcy, he or she may still qualify with the approval of the Bankruptcy Court.
• A homeowner may qualify for a claim even if foreclosure procedures have already begun.

Here are some important facts you need to know:

• Legal fees and foreclosure costs for activities already completed and added to the current default amount can be included in the claim amount.
• A homeowner may qualify even if he or she had a Mortgage Modification completed in the past 12 months, so long as the circumstances for both defaults are different.
• Accrued late charges are usually waived and therefore not included.
• A Partial Claim would be deducted from the net proceeds of a Pre-Foreclosure sale.
• A lender may not add any fees or charges associated with the preparation of a claim.
• If a homeowner completed a claim and after some time re-defaulted on the loan, HUD will subordinate the claim to assist the homeowner in the completion of a Mortgage Modification.
• If the homeowner has a low surplus income (less the 5%), lenders are highly encouraged to offer the homeowner a forbearance agreement in conjunction with the Partial Claim.

Here's how to apply:

• Contact your lender to get a list of all necessary documentation to complete claim (3 to 6 months of bank statements, 2-3 years of Tax Returns, etc.) as well as HUD contacts for assistance with the application process.
• Prepare a Letter of Hardship.
• HUD will want proof that you have the ability to make your mortgage payment in full on a regular basis, so proof on income will be required.

Once you have gathered all required documents, double check all is in order and send the packet to your lender with a request of signature at time of delivery. Always ask for names and reference numbers when speaking to lenders and keep good records of all your communication.

If you are approved, here are the usual terms and conditions of the loan:

• There's no monthly payment required until the first mortgage is paid in full or the property is sold.
• The loan is interest free.
• There will be no re-payment penalty.
• A homeowner can pay for a Partial Claim in installments via Cashier's check or Certified Funds.
• When the note is satisfied, the homeowner can apply for a refund in the mortgage insurance premium.