The Department of Housing and Urban Development (HUD) has traditionally focused on supporting low to moderate-income home ownerships. Through the Federal Housing Administration’s (FHA) insurance programs, HUD makes loans available to those who otherwise would not meet income requirements. Lenders are reimbursement from FHA if a borrower defaults.
When a loan is insured through FHA, borrowers pay a mortgage insurance premium each year that is approximately 1 percent of the loan amount. This money is saved into an FHA insurance fund. The HUD partial claim program includes paying the lender on behalf of the homeowner to avoid foreclosure with these funds.
To see if you are eligible for a HUD Partial Payments of Claim, you should contact your lender to discuss your delinquent mortgage payments. The lender will examine your situation and determine if you qualify for this service.
HUD can advance up to 12 months of mortgage payments through this program. The partial claim total can not exceed 12 months of payment, including the principal, interest, taxes, and insurance.
The HUD and You
The HUD has traditionally focused on supporting low to moderate-income home ownerships. Through the Federal Housing Administration’s (FHA) insurance programs, HUD makes loans available to those who otherwise would not meet income requirements. Lenders are reimbursement from FHA if a borrower defaults.
When a loan is insured through FHA, borrowers pay a mortgage insurance premium each year that is approximately 1 percent of the loan amount. This money is saved into an FHA insurance fund. The HUD partial claim program includes paying the lender on behalf of the homeowner to avoid foreclosure with these funds.
To see if you are eligible for a HUD Partial Payments of Claim, you should contact your lender to discuss your delinquent mortgage payments. The lender will examine your situation and determine if you qualify for this service.
HUD can advance up to 12 months of mortgage payments through this program. The partial claim total can not exceed 12 months of payment, including the principal, interest, taxes, and insurance. If you owe more than 12 months, you will need to pay the remaining balance so that you will qualify for the partial mortgage claim.
Your Responsibilities
Lenders can file a partial claim on a defaulting mortgage for the amount needed to bring the payments up to date. Late fees are not included in the amount of the claim, but legal costs for pre-foreclosure proceedings are. Prepayment and lockout provisions must be waived by the lender as well. If the partial claim request submitted to HUD on your behalf is approved, the lender will receive a notification.
You are responsible for paying HUD back the amount given to the lender to cover your late payments. HUD will place a lien on your house and require you to sign an interest-free promissory note in the amount of the claim plus overdue interest. You must pay the lien in full when you refinance your mortgage, pay the original FHA loan in full, sell your home, or transfer ownership to someone else. You can pay the partial claim back earlier if you wish.
To qualify for a HUD partial claim, you must:
- Have missed at least four payments but not more than 12
- Have no other liens on the house
- Show that you can resume making mortgage payments
- Have any other HUD loans currently in default
- Have not violated any Housing Assistance Payment (HAP) contracts
- Have not violated any HUD Use Agreements
- Paid at least 5 percent of the original mortgage amount to the FHA fund
If you default on your mortgage after you have received a HUD claim, you may be granted a loan modification or another option so you won’t lose your house through foreclosure.
Partial Claims 101
HUD partial claims benefit the homeowner by allowing him or her to keep their existing home, thus preserving affordable housing. It also fixes the current default, bringing payments up to date. The program benefits FHA by restructuring the original debt in a way that guarantees more contributions to the FHA General Insurance Fund.
Accepting a HUD partial claim payment means that you agree to repay 75% of the loan amount and enter into a 20-year HUD Use Agreement. If you are unable to pay the partial claim payment when you sell your home, you can see if you qualify for an FHA short sale.
You can be denied if you are more than 12 months overdue or fewer than four months. You can also be refused if you don’t have enough money to pay what you owe over 12 months. You may also not qualify for forbearance, which would reduce or suspend payments for a time before foreclosure proceedings begin.
To be approved, you must show that you are no longer in the same economic position that caused you to default on your mortgage payments in the first place. If you can not demonstrate that you can resume your payments after the mortgage is made current, you will not be approved.
Each application for partial claim payments is based on the lender’s review and HUD’s approval. If you do not qualify, be sure to ask what you could do to improve your chances. Losing your home to foreclosure is a shattering experience.
Another Partial Claim Option
Because of the economic crisis spawned by the Coronavirus in 2020, FHA and HUD have been working in developing new programs to assist struggling homeowners.
On April 1, 2020, FHA, under the Coronavirus Aid, Relief, and Economic Security (CARES) Act, made additional provisions for homeowners experiencing financial hardship due to the COVID-19 national emergency. Assistance to qualifying FHA-loan holders includes up to six months for mortgage forbearance and a COVID-19 national emergency stand-alone partial claim.
So whether through the HUD partial claim or the COVID-19 national emergency stand-alone partial claim, there’s hope when you can’t make your mortgage payment.