If you’re transitioning off of your COVID-19 Forbearance plan or are applying for a loan modification, you may be hearing the term “partial claim.”
A partial claim is a tool that the FHA uses to modify your mortgage.
The partial claim is getting a lot of attention recently as it is being used to help borrowers transition off of their COVID-19 Forbearance plans.
(Learn about ALL of your forbearance transition options here)
What is a partial claim on a mortgage?
A partial claim is a non-interest bearing, lump sum amount of money that gets recorded against a property as a subordinate lien to the primary mortgage.
The partial claim amount becomes due at the maturity date of your mortgage. The partial claim gets recorded on title as a lien, underneath your first mortgage.
How does a partial claim help me transition off forbearance?
A partial claim can be used to transition off of your COVID-19 Forbearance plan as a “standalone partial claim.” A “standalone partial claim” is the name for the type of partial claim that applies specifically to a COVID Forbearance transition and is not part of a modification.
If you received a COVID-19 Forbearance plan, one option to help you resume regular payments is to apply for and accept a “standalone partial claim.”
In this situation, FHA takes all the payments you missed over the course of your forbearance, adds them together and creates a lump sum amount of missed payments that becomes your “partial claim.”
The partial claim then gets recorded as a subordinate lien on title (attached to your home) and becomes due when your original mortgage matures.
You resume making your regular mortgage payment (the payment you were making prior to COVID) and the terms of your original mortgage stay in place.
When your mortgage matures, the partial claim amount becomes due.
How is a partial claim used in a loan modification?
If you get approved for a loan modification, a partial claim is the tool that FHA uses to put your arrears on the end of the loan, so you don’t have to pay everything you missed at one time.
If you get approved for an FHA modification, you will receive loan modification documents. The documents will specify a new principal balance, a new monthly payment, a new interest rate and a new maturity date.
You can also expect to receive partial claim documents – where FHA takes a portion (or all) of your missed mortgage payments and creates a partial claim that gets attached to your home.
The partial claim does not collect interest and becomes due at the new maturity date listed in your loan modification documents.
Sometimes, the partial claim will include more funds than just the calculation of your missed mortgage payments. FHA may have decided to defer an amount of your prior principal balance as well.
Is a partial claim a second mortgage?
If you execute a partial claim, it gets recorded as a subordinate lien on title, separate from your first mortgage.
It will show up on your title report underneath your first mortgage in the amount that was listed in your partial claim documents.
Because the partial claim does not collect interest and often gets recorded as part of a loan modification or a forbearance transition, it’s slightly different from a traditional 2nd mortgage. For purposes of refinancing or selling though, it gets viewed as a subordinate lien on title just like a 2nd mortgage.
Can you refinance if you have a partial claim?
After your partial claim is executed and you are back on track with your regular monthly mortgage payments, you can complete a refinance of your loan with a new lender (if you qualify).
The new lender will likely give you a new loan with one balance that includes the partial claim amount.
If you’ve been offered a partial claim, it is always good to have an attorney review the documents to fully explain what you’re looking at (and how it will impact your mortgage).
If you’re a Washington state homeowner who is needing help related to your partial claim, feel free to reach out for a free consultation at (425) 654-1674.