What Is a Partial Claim Deed of Trust?

Homeownership can sometimes present unforeseen financial challenges, making it difficult for individuals to maintain their mortgage payments. When faced with such hardships, understanding available assistance options becomes important to avoid severe consequences like foreclosure. This article will explore a specific tool, the partial claim deed of trust, and how it functions to support homeowners in distress.

Defining a Partial Claim Deed of Trust

A partial claim deed of trust represents a specific financial instrument designed to assist homeowners who have fallen behind on their mortgage payments. It functions as an interest-free loan provided by a mortgage servicer, often associated with government-backed mortgages, such as those insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA). The primary purpose of this claim is to cover past-due amounts, including principal, interest, taxes, and insurance, thereby bringing the primary mortgage current and helping to prevent foreclosure. This financial aid is typically offered when a homeowner experiences a temporary financial hardship, like job loss or illness.

A partial claim is non-interest bearing, meaning it does not accrue additional interest over time. Furthermore, it generally does not require regular monthly payments. Instead, this loan creates a new, separate lien on the property, often referred to as a “second lien” or “junior lien,” which is distinct from the original mortgage. This new lien is secured by a promissory note and a deed of trust, which are legal documents recorded in public records to establish the claim against the property.

The amount covered by a partial claim can typically include up to 12 months of mortgage payments, encompassing principal, interest, taxes, and insurance. While traditionally associated with FHA loans, similar partial claim programs may exist for VA-guaranteed loans.

This mechanism allows homeowners to stabilize their mortgage without immediately increasing their ongoing monthly financial burden. The partial claim essentially defers the missed payments, allowing the homeowner to resume their regular mortgage payments on the original loan.

How a Partial Claim Operates

Once a partial claim is approved, the funds are directly applied to the past-due amounts of the primary mortgage, effectively bringing the account current. This direct payment to the lender resolves the delinquency, allowing the homeowner to resume their regular monthly mortgage payments as per the original loan terms.

To formalize the partial claim, new legal documents are executed, signifying the creation of this separate debt. A promissory note is signed for the amount of the partial claim, representing the homeowner’s promise to repay this specific debt to the Secretary of Housing and Urban Development or the relevant government entity. Concurrently, a separate deed of trust, known as the partial claim deed of trust, is signed and subsequently recorded in the local land records where the property is located.

A defining feature of the partial claim is that it typically does not require regular monthly payments, providing immediate financial relief to the homeowner. Instead, repayment of the partial claim is generally deferred until specific future events occur, acting as a balloon payment. The most common triggers include the sale of the home, the refinancing of the primary mortgage, the maturity of the original mortgage loan, or the termination of FHA insurance on the mortgage.

For instance, if a homeowner sells their property, the partial claim amount must be paid in full from the sale proceeds before a clear title can be transferred to the new owner. Similarly, when refinancing the first mortgage, the partial claim typically needs to be paid off or re-subordinated, depending on the new lender’s requirements and program guidelines.

Impact on Your Mortgage and Homeownership

The presence of a partial claim deed of trust on a property has several implications for its title and future financial dealings. As a recorded second lien, it attaches to the property’s title, meaning it must be satisfied, or paid off, before a clear title can be transferred during a sale or certain refinancing transactions. This is because the partial claim represents a debt secured by the home, similar to any other mortgage or lien.

When considering future refinancing of the primary mortgage, the existence of a partial claim can introduce complexities. While some refinancing scenarios might allow for the partial claim to be re-subordinated, meaning it would remain in a secondary position behind the new first mortgage, new lenders often require the partial claim to be paid off in full as part of the refinance process. This requirement ensures the new primary lender has a first-priority lien on the property, which is a standard lending practice. Homeowners interested in refinancing should contact their current servicer or the entity holding the partial claim to understand the specific payoff requirements and potential impacts on their new loan terms.

Selling the home also directly involves the partial claim. Upon the sale of the property, the proceeds are typically used first to pay off the primary mortgage, followed by the partial claim, as the partial claim is a junior lien to the primary mortgage. Any remaining funds after both liens are satisfied would then go to the homeowner as their equity. If the sale proceeds are insufficient to cover both the primary mortgage and the partial claim, the homeowner might be responsible for the difference, or in some cases, they may need to explore options like a short sale, where the lender agrees to accept less than the full amount owed.

Although a partial claim is non-interest bearing and requires no monthly payments, it still represents a debt against the property that reduces the homeowner’s available equity. While it helps prevent foreclosure and allows homeowners to regain stability, it is not a grant and must eventually be repaid, impacting the net proceeds received from a future sale or refinance. The amount of the partial claim will directly subtract from the homeowner’s accumulated equity in the property at the time of repayment. Homeowners should remember that the original mortgage payments resume as normal after the partial claim brings the account current.