What Is a Partial Claim on a Mortgage?
Understand what a partial claim is and how this mortgage relief option helps homeowners resolve past-due payments to prevent foreclosure.
A partial claim on a mortgage offers a specific type of assistance for homeowners facing financial difficulties. It functions as a mortgage relief option designed to help individuals avoid foreclosure by addressing past-due mortgage payments. This financial tool can provide a pathway for homeowners to bring their mortgage current and maintain their homeownership.
Understanding a Partial Claim
A partial claim is an interest-free loan that covers a homeowner’s missed mortgage payments. This loan is typically provided by the loan servicer or investor, often backed by government entities. Its purpose is to help homeowners cure their mortgage delinquency without requiring an immediate lump-sum payment of the overdue amount.
The amount covered by the partial claim is not added to the original mortgage balance. Instead, it is typically established as a separate, subordinate lien on the property. This means the partial claim creates a second, distinct financial obligation tied to the home, which is junior to the primary mortgage. This financial arrangement differs from a loan modification, which permanently alters the terms of the original mortgage, such as interest rate or loan term. A partial claim maintains the original mortgage terms, only addressing the past-due amount through a separate agreement.
This non-interest bearing loan is secured by a promissory note. The amount advanced through a partial claim can cover up to 12 months of principal, interest, taxes, and insurance, or up to 30% of the mortgage’s unpaid principal balance. This structure allows homeowners to resume their regular mortgage payments without the immediate burden of catching up on a large outstanding balance.
Eligibility Requirements and Pre-Application Steps
To be considered for a partial claim, homeowners generally need to meet specific criteria demonstrating their financial hardship and commitment to resuming payments. A verifiable financial hardship, such as a reduction in income or an increase in expenses, is a fundamental requirement. This hardship must be the direct cause of the inability to make timely mortgage payments.
Mortgages typically need to be significantly past due, often ranging from 4 to 12 months, to qualify for this type of assistance. Additionally, the property must be the homeowner’s primary residence.
Partial claims are most commonly associated with government-backed mortgages, specifically those insured by the Federal Housing Administration (FHA). While similar options exist for other federally-backed loans like those from the U.S. Department of Agriculture (USDA), the Department of Veterans Affairs (VA) has different mechanisms for assisting borrowers and generally does not offer partial claims in the same way as FHA or USDA.
Before initiating an application, homeowners should gather essential documentation to support their request. This includes proof of the financial hardship, such as detailed explanations of income reduction or increased expenses. Financial statements like recent pay stubs, bank statements, and tax returns are typically required to verify income and assets. A written hardship letter explaining the circumstances leading to the payment difficulties is also a standard component of the application package.
Submitting Your Application and Understanding Repayment
Once all necessary documentation and information have been prepared, the homeowner submits the complete application package to their mortgage servicer. The servicer acts as the primary point of contact and is responsible for reviewing the application and determining eligibility based on program guidelines. This review process often involves assessing the homeowner’s financial situation to ensure they can sustain future mortgage payments after the partial claim addresses the past-due amount.
Following the submission, the servicer may request additional information or clarification as they evaluate the application. Homeowners should respond promptly to any such requests to avoid delays in the process. Upon approval, the servicer will notify the homeowner of the decision, and the necessary legal documents, including the promissory note and the agreement for the subordinate lien, will be prepared for signature.
The partial claim amount, secured by the subordinate lien, does not require monthly payments. Instead, repayment of the partial claim is typically triggered by specific events. These events commonly include the sale of the home, the refinance of the original mortgage, or the maturity date of the original loan. When one of these events occurs, the partial claim amount generally becomes due in full as a lump sum. The partial claim is not typically forgiven; it must be repaid.