What Is Partial Claim?

How Does a Partial Claim Work?

When an FHA borrower falls behind on their mortgage and forbearance alone isn't enough to resolve the arrearage, the servicer evaluates them for a partial claim. HUD advances the past-due amount — including missed principal, interest, escrow, and late fees — directly to the servicer to bring the first mortgage current. In exchange, the borrower signs a promissory note and subordinate mortgage (the "partial claim") payable to HUD.

The mechanics are straightforward:

1. Evaluation: The servicer determines the borrower meets FHA partial claim eligibility — the loan is at least 4 months delinquent, the borrower can resume regular payments, and the total partial claim amount doesn't exceed 30% of the unpaid principal balance.
2. Advance: HUD advances the arrearage amount to the servicer, bringing the first mortgage current. The first mortgage terms remain unchanged — same rate, same payment, same maturity.
3. Subordinate lien: The borrower signs a promissory note and subordinate deed of trust for the partial claim amount. This lien sits behind the first mortgage and carries 0% interest with no required monthly payments.
4. Repayment trigger: The partial claim becomes due when the borrower sells the property, refinances the first mortgage, or pays off the first mortgage. If the borrower stays in the home and continues making first mortgage payments, the partial claim can remain outstanding indefinitely.

Who Qualifies for a Partial Claim?

Eligibility requirements under HUD guidelines:

• The mortgage must be FHA-insured (insured by the Federal Housing Administration under Title II of the National Housing Act)
• The borrower must be at least 4 months delinquent (120+ days)
• The borrower must demonstrate ability to resume making regular first mortgage payments going forward
• The cumulative partial claim amount (including any prior partial claims on the loan) cannot exceed 30% of the unpaid principal balance
• The borrower must occupy the property as their primary residence

Partial Claim vs. Loan Modification vs. Payment Deferral

These three tools all address the same problem — catching up on a delinquent mortgage — but work differently:

• Partial claim (FHA only): HUD pays the arrearage as a 0% subordinate lien. Original loan unchanged. Best for borrowers who can resume their existing payment.
• Loan modification: Permanently restructures the loan (lower rate, longer term). Changes the monthly payment amount. Best for borrowers who need a lower payment.
• Payment deferral (Fannie/Freddie): Similar concept to partial claim but for conventional loans. Missed payments are moved to a non-interest-bearing balance due at payoff. The servicer handles it internally rather than HUD.

In the FHA waterfall, a standalone partial claim is evaluated before modification. If the partial claim alone can't resolve the delinquency (because the arrearage exceeds 30% of the principal), the servicer evaluates a combination: modification to reduce the payment plus partial claim to address the remaining arrearage.

Why Does the Partial Claim Matter for FHA Borrowers?

FHA borrowers are disproportionately vulnerable to financial distress — they tend to have lower credit scores, smaller down payments, and tighter margins. The 11.52% FHA serious delinquency rate (over 6x the conventional rate of 1.78%) means partial claims are among the most heavily used tools in the loss mitigation system. For borrowers whose hardship has passed but who accumulated months of missed payments during a medical crisis, job loss, or other temporary event, the partial claim provides a path back to current status without any change to their existing mortgage terms.