You fell behind on your FHA mortgage after a job loss. The servicer offered something called a partial claim instead of a foreclosure, and you signed a stack of documents that included a new promissory note and a new deed of trust. You did not receive any cash at closing, but a lien was recorded against your house in favor of the United States Department of Housing and Urban Development. You just gave HUD a second mortgage, and in exchange, HUD paid the amount you were behind and brought your first mortgage current. The partial claim deed of trust is the security instrument that gives HUD the right to collect that money when you sell the house, refinance, or pay off the first mortgage.
A partial claim is an FHA loss mitigation tool available only to borrowers with FHA-insured mortgages. The FHA insurance fund, administered by HUD, advances the funds to the mortgage servicer to cover the full amount of the borrower’s delinquency, including the past-due principal, interest, taxes, and insurance. In exchange, the borrower signs an interest-free promissory note payable to HUD and a deed of trust securing that note as a second lien on the property. The borrower makes no monthly payments on the partial claim. The partial claim balance does not accrue interest. The entire amount becomes due when the borrower sells the property, refinances the first mortgage, or reaches the maturity date of the first mortgage. If the borrower dies, the partial claim is due from the estate or from the sale of the property.
How a Partial Claim Actually Works — The Transaction Step by Step
The partial claim is not a loan modification. It does not change the interest rate, the monthly payment, or the term of the first mortgage. It is a separate transaction that resolves the delinquency without altering the underlying loan. The borrower must demonstrate the ability to resume making the regular monthly mortgage payments going forward. The partial claim fixes the past. The borrower’s income fixes the future. If the borrower cannot afford the regular payment even after the delinquency is cured, a partial claim is not the right solution, and the servicer should evaluate other loss mitigation options such as a loan modification.
The amount of the partial claim is the total delinquency, including all past-due principal and interest, any escrow advances the servicer made for taxes and insurance, and certain foreclosure costs and legal fees that have accrued. There is a statutory maximum on the partial claim amount, which is the equivalent of twelve months of principal, interest, taxes, and insurance, or PITI, though HUD has at times authorized higher limits during economic crises. The borrower’s total debt on the property after the partial claim is the balance of the first mortgage plus the partial claim balance. The combined balance cannot exceed the FHA loan limit for the area.
Once the partial claim is approved and the documents are signed, HUD wires the partial claim amount to the servicer. The servicer applies the funds to bring the first mortgage completely current. The servicer records the partial claim deed of trust as a second lien on the property, behind the first mortgage and ahead of any other junior liens. The borrower resumes making the regular monthly payment on the first mortgage and makes no payments on the partial claim. The partial claim sits silently as a zero-interest, no-payment second lien, sometimes for decades, until a triggering event makes it due.
When the Partial Claim Must Be Paid — The Triggering Events
The partial claim becomes due in full upon the earliest of four events. First, the borrower sells the property. The partial claim is paid from the sale proceeds at closing, just like the first mortgage. Second, the borrower refinances the first mortgage. The partial claim must be paid off as part of the refinance, which means the borrower must either bring cash to closing or have enough equity to roll the partial claim into the new loan if the new lender allows it. Third, the first mortgage reaches its maturity date, typically thirty years from origination. If the borrower still owns the house and has not paid off the first mortgage by the maturity date, the partial claim becomes due at the same time. Fourth, the borrower dies and the property is transferred, unless an eligible surviving spouse or heir assumes the partial claim under HUD’s assumption rules.
The partial claim is interest-free for the life of the loan. A twenty-thousand-dollar partial claim that sits for twenty years is still a twenty-thousand-dollar debt when it becomes due. There is no compounding, no accrual, and no monthly servicing fee. The cost to the borrower is the lien on the property and the obligation to repay the principal amount at the triggering event. For a borrower who stays in the home for the full thirty-year term of the first mortgage, the partial claim effectively functions as a zero-interest loan from the government with a thirty-year balloon payment.
| Triggering event | What happens | Borrower action required |
| Sale of property | Partial claim paid from sale proceeds | None; handled at closing |
| Refinance of first mortgage | Partial claim must be paid off | Bring cash or roll into new loan |
| First mortgage maturity | Partial claim due simultaneously | Pay off or sell property |
| Death of borrower | Due from estate or property sale | Heir may assume if eligible |
Partial Claim vs Loan Modification — The Practical Differences
A loan modification permanently changes the terms of the first mortgage: the interest rate may be reduced, the term may be extended, or a portion of the principal may be deferred. The borrower makes a new, usually lower monthly payment going forward. A partial claim does not change the first mortgage at all. The payment stays the same, the interest rate stays the same, and the term stays the same. The partial claim simply pays the delinquency and creates a new second lien. The borrower who was struggling with a payment that was manageable before a temporary hardship is the ideal candidate for a partial claim. The borrower whose payment is unaffordable even after the hardship ends needs a modification.
The partial claim note and deed of trust are recorded in the county land records and appear in the chain of title. A title search will reveal the partial claim as a second lien against the property. When the borrower sells or refinances, the title company will require the partial claim to be paid off as a condition of issuing the title policy. The payoff process for a partial claim is handled through HUD’s servicing contractor, not through the servicer of the first mortgage. The borrower or the closing agent must request a payoff statement from HUD separately from the first mortgage payoff. HUD is a government agency, and its payoff process moves at government speed. Request the partial claim payoff statement early in the escrow process.
FAQ — Partial Claim Deed of Trust
Does a partial claim hurt my credit?
The partial claim itself is not reported to credit bureaus as a negative event, but the delinquencies that led to the partial claim were already reported. By the time a partial claim is offered, the borrower has typically missed three or more payments, and those delinquencies appear on the credit report regardless of whether the partial claim is approved. The partial claim resolves the delinquency and stops the late payments from continuing to accumulate on the credit report. The first mortgage is reported as current from the date the partial claim funds. The partial claim note does not appear on a standard credit report because there are no monthly payments to report.
Can I pay off the partial claim early, before I sell or refinance?
Yes. You can pay off the partial claim at any time by sending the full outstanding balance to HUD. There is no prepayment penalty. Partial prepayments are not permitted. You pay the entire balance or you pay nothing. For most borrowers, paying off a zero-interest loan early makes no financial sense, because the same money could be earning interest in a savings account or paying down higher-interest debt. The partial claim is effectively the cheapest money you will ever borrow, and there is no financial reason to repay it before a triggering event forces repayment.
Can HUD foreclose on the partial claim deed of trust?
Yes, but it is rare. HUD has the legal right to foreclose if the partial claim is not paid when due, but HUD typically does not initiate foreclosure solely on the partial claim. The partial claim is a junior lien. Foreclosing on a junior lien would require HUD to pay off the first mortgage, which HUD insures. The more common scenario is that the first mortgage lender forecloses for a new default, and the partial claim is extinguished along with all other junior liens. HUD then files a claim with the FHA insurance fund to recover the partial claim amount. The borrower loses the house to foreclosure and still theoretically owes the partial claim balance to HUD, though HUD’s collection efforts vary depending on the circumstances of the default.
