Start Handbook
Use this menu to find the information that you are looking for.
Summary of Content:
Background
Early Delinquency Servicing Requirements
Loss Mitigation Program Overview
General Program Requirements
Special Forbearance
Loan Modification
Partial Claim
Pre-Foreclosure Sale
Deed in Lieu of Foreclosure
Appendices
 
 
PARTIAL CLAIM
 

Under the partial claim option, a lender will advance funds on behalf of a borrower in an amount necessary to reinstate a delinquent loan (not to exceed the equivalent of 12 months PITI). The borrower, upon acceptance of the advance, will execute a promissory note and subordinate mortgage payable to HUD. Currently, these promissory or “partial claim” notes carry no interest and are not due and payable until the borrower either pays off the first mortgage or no longer owns the property.

Following reinstatement, the lender will file a “partial” claim for the amount of the advance plus the lender's incentive fee, and forward a copy of the recorded documents to HUD. A contractor retained by HUD will service the partial claim liens.

HUD approval is not required in order for lenders to advance funds and file a partial claim, as long as the requirements detailed in this section are satisfied. This new option provides lenders with a powerful tool to assist borrowers threatened with foreclosure. However, this should be used only if the lender is confident that:

•  The borrower has the long term financial stability to support the mortgage debt.

•  The borrower does not have the ability to repay the arrearage through a special forbearance or modification.

  There are three notable changes to the partial claim option. First, the seven month delinquency requirement has been eliminated. Partial claims may now be used any time after the fourth month of delinquency, so long as the total arrearage on the loan does not exceed the equivalent of 12 months PITI. Second, the BPO requirement has been eliminated. And the third notable change is that copies of the subordinate lien will not be required to accompany the claim submission. However the original recorded documents will still be required to be submitted.

A. Loan Default

The loan must be at least 4 months (120 days), but no more than 12 months (365 days) delinquent at the time the partial claim note is executed. The loan may not be in foreclosure when the partial claim note is executed. However, a lender may remove a loan from foreclosure if the borrower's financial situation has improved sufficiently to justify a partial claim.

  B. Borrower Qualifications

Partial claims may be offered to borrowers who satisfy all of the following requirements:

•  Have overcome the cause of the default.

•  Have sufficient income to resume monthly mortgage payments.

•  Do not have sufficient surplus income to repay the arrearage through a repayment plan.

•  A mortgage modification is not appropriate.

  •  Borrower is owner occupant(s) committed to continuing occupancy of the property as a primary residence. Partial claim may not be used to reinstate a loan prior to a sale or assumption.

  A lender may consider a mortgagor who has filed a petition in Bankruptcy Court under Chapter 13 for a partial claim, only after obtaining the approval of the Bankruptcy Court. If the mortgagor has filed a bankruptcy petition under Chapter 7, the lender must obtain Bankruptcy Court approval. and in addition, the mortgagor must reaffirm the debt.

  •  Property Condition

  There is a change from previous guidance in that a broker's price opinion (BPO) will not be required . While the partial claim option does not include a loan-to-value restriction and no appraisal or broker's price opinion is required, the lender must conduct a review sufficient to verify for FHA that the property has no physical condition(s) which adversely impact the borrower's continued use or ability to support the debt.

A borrower may not be able to support payments under a partial claim if the property is in such a deteriorated condition that repairs drain the borrower's monthly resources. An analysis of the borrower's surplus income should consider anticipated property maintenance expenses. If the mortgagee's inspection identifies a property in extremely poor physical condition, a partial claim may not offer a permanent resolution to the default.

  D. Financial Analysis

The lender is required to assess the borrower's financial status as described in Section H, page 10. HUD expects the lender to project the borrower's surplus monthly income for a minimum of three months, and calculate the surplus income percentage.

If the financial analysis determines that the borrower does not have the ability to support the normal monthly payment, the partial claim option may not be used. In no case may partial claim be used if the borrower's surplus income percentage is 0% or less than 0%. If the borrower has low surplus income (< 5%), lenders are encouraged to combine partial claim with a special forbearance plan allowing the borrower to demonstrate the ability to make payments for a period of 3 or more months prior to origination of the partial claim note.

  Lenders must use good business judgment to determine if the borrower has the adequate surplus income to repay the arrearage through special forbearance or mortgage modification before approving a partial claim. Lenders are encouraged to require borrowers to contribute all available funds toward paying down the default, thereby reducing the amount of the partial claim lien.

  E. Combining Options

Partial claim may be utilized as a stand alone tool, or incorporated as part of an informal forbearance plan, or special forbearance agreement. For example, if a borrower needs time to resolve the default, but will eventually be able to support the normal monthly payment but no more than that, a repayment plan or special forbearance may culminate in a partial claim. An existing repayment plan or special forbearance may also be converted to partial claim if the borrower's circumstances change. Partial claim may not be used in conjunction with a mortgage modification.

  F. Allowable Provisions

The following provisions apply to all partial claim notes:

•  The partial claim must fully reinstate the loan.

•  The partial claim advance may include only principal, interest and escrow advances required to reinstate the loan.

•  In no event may the total arrearage exceed the equivalent of 12 months PITI. The maximum partial claim advance for ARM, GPM, and GEM loans is calculated by adding the specific PITI requirement for each of the monthly installments to be included in the partial claim.

•  The lender may not include late fees, legal fees or other administrative expenses in the partial claim note. However, lenders may collect legal and administrative fees (resulting from a canceled foreclosure action) directly from the borrower to the extent not reimbursed by HUD and in accordance with the limitations of Chapter 4 of HB 4330. 1 REV-5.

•  The lender will record the subordinate mortgage in all jurisdictions except the State of Texas. ( In Texas, only a promissory note is required.)

•  There is no lien priority requirement for partial claim notes, however the lender must ensure that recordation of the subordinate mortgage does not jeopardize the first lien status of the FHA insured mortgage.

•  Payment of a partial claim does not decrease mortgage insurance coverage.

  G. Repayment Terms

The partial claim advance will be secured by a note and subordinate mortgage with the following repayment terms.

•  The note is interest free. (The Secretary reserves the right to assess interest on partial claim notes originated in the future.)

•  The entire principal balance shall be payable as one balloon payment. No monthly or periodic payments are required.

•  The note is due at the earlier of 1) payoff of the first mortgage, or 2) when the borrower no longer owns the property.

•  There is no prepayment penalty.

  Voluntary payments or prepayments should be directed to the following :

U.S. Department of HUD ,
c/o Clayton National
4 Corporate Drive,
Shelton, CT 06484

  H. Required Documentation

A promissory note must be executed in the name of the Secretary and a subordinate mortgage must be obtained and recorded. The lender must include the provisions of HUD's model form of note and subordinate mortgage (as provided in Mortgagee letter 97-17) and make any amendments required by State laws. In the State of Texas only, HUD will accept an unrecorded promissory note. While HUD does not endorse the products or services of vendors, the Department is aware that State specific documents are commercially available . Lenders who take advantage of the convenience of purchasing these documents should review them prior to use.

  I. Disclosures

FHA requires lenders to comply with any disclosure or notice requirements applicable under State or Federal law.

  J. Lender Incentives

FHA will pay lenders a $250 incentive fee for each partial claim . The borrower may not be charged any additional costs.

  K. Failure

In the event the borrower becomes delinquent following reinstatement via a partial claim, it shall be treated as a new default and serviced accordingly.

  L. Limitations on Use

If a loan has been modified or reinstated using a partial claim within the past three years, re-default risk is presumed to increase following a subsequent partial claim. Prior to allowing a partial claim in this circumstance, the lender must prepare a written justification, and retain a copy along with supporting documents in the claim review file. It is anticipated that this will be a highly unusual occurrence, and that the cause of the second default will be unrelated to the original problem. There is a lifetime limitation of 12 monthly installments of PITI. Once 12 full monthly installments have been paid, no further partial claims will be honored on a specific case.

  M. Claim Filing

The lender must file the claim within 60 days of the date the subordinate lien to HUD is executed.. The claim may include the amount of the partial claim note and the $250 incentive fee. No other costs or fees will be paid by HUD.

N. Document Delivery

It is the responsibility of the lender to deliver the original promissory note and recorded mortgage to FHA at the address listed below, as soon as possible but no later than 6 months from the execution date of the partial claim note.

U.S. Department of HUD ,
c/o Clayton National
4 Corporate Drive,
Shelton, CT 06484

Mortgagee's who fail to deliver original, recorded documents within the time frame specified, will be required to reimburse the Department any incentive fee previously paid for the partial claim. Time extensions may be granted by the Oklahoma City Office of HUD in the event document delivery is delayed by events beyond the control of the lender.

  •  Servicing

  A contractor selected by HUD will service the partial claim notes. Effective immediately, the following contractor will service the Partial Claim notes:

U.S. Department of HUD ,
c/o Clayton National
4 Corporate Drive,
Shelton, CT 06484
Telephone: (800) 967-3050

 

 

   
 

Mortgage Assistance and Stop Foreclosure with FHHDC.
Mortgagee Handbook Letter 00-05

   
 

The purpose of this mortgagee letter is to announce clarifications of policy and procedural changes in FHA’s Loss Mitigation Program and provide an updated consolidation of the existing program guidance.

   
  References from:
U.S. Department of Housing and Urban Development
Washington, D. C. 20410-8000
January 19, 2000
   
   
  If you have any douts in finding what you want, please, contact us and let us help you to solve your douts. Our negotiators are certified housing counselors that hold a certification in Loss Mitigation by the US Department of Housing and Urban Development.