What Is a Partial Claim Mortgage: FHA 30% Cap and Repayment

A partial claim mortgage is an interest-free loan from the Department of Housing and Urban Development (HUD) that pays off the payments you’ve missed on an FHA-insured mortgage, bringing your loan current in a single stroke. The amount HUD advances becomes a subordinate lien on your home. You owe no monthly payments on it, no interest ever accrues, and the balance sits quietly until you sell the house, refinance the first mortgage, or make your final payment on the original loan. More than one million FHA borrowers have used partial claims to avoid foreclosure.

How the Money Moves

The partial claim is a feature of loans insured by the Federal Housing Administration. When you fall behind, your mortgage servicer can draw money from the FHA Mutual Mortgage Insurance Fund to cover everything you owe in arrears: missed principal, interest, escrow shortfalls, and any fees HUD has approved.¹ That advance fully reinstates your first mortgage.

The critical difference from a loan modification is that the missed amount does not get added to your existing mortgage balance. HUD places a separate second lien on your property, and you sign a promissory note naming the Secretary of HUD as the holder. That note carries zero interest.¹ Because no interest accrues and no monthly payments are required, the balance never grows. You go back to making your regular mortgage payment as if the delinquency never happened.

Federal law also prohibits your servicer from charging you any expenses connected to the partial claim itself.² Recording fees for the second lien and notary costs are nominal, and HUD absorbs the insurance claim cost. Your only new obligation is the silent second lien.

The 30% Lifetime Cap

Federal law caps the total partial claim amount at 30% of your mortgage’s unpaid principal balance, plus any HUD-approved costs.² That 30% is a lifetime ceiling on your loan, not a per-event limit. If you received a partial claim during the COVID-19 pandemic and later need another one, the combined total across all partial claims cannot exceed 30% of the unpaid principal balance measured at the time of the original claim.

On a $200,000 unpaid balance, the cumulative maximum is $60,000. If a prior partial claim used $25,000, only $35,000 remains for any future partial claim or FHA Payment Supplement. Several FHA loss mitigation tools draw from the same pool, so what you’ve already used shapes what your servicer can offer next time.

Who Qualifies

Four requirements drive eligibility.

The loan must be FHA-insured. Conventional, VA, and USDA loans have their own programs.
The property must be your principal residence. Investment properties and second homes are not eligible.¹
You must generally be at least four monthly payments behind but no more than 12. That window targets borrowers with a real arrearage who haven’t fallen so deep that reinstatement alone won’t fix the problem.
Your servicer must confirm that the hardship has been resolved and that you can sustain the regular monthly payment going forward.¹

You may also be required to complete a trial payment plan of at least three months before the partial claim is finalized, to prove you can consistently make the full payment.¹

How to Request One

Call your servicer’s loss mitigation department. Don’t wait for a formal notice of default. Once you submit a complete loss mitigation application, the servicer is required to evaluate you for every available option, and earlier contact gives you more room to work with.

Expect to provide recent pay stubs (or a signed profit-and-loss statement if self-employed), the last two years of federal tax returns along with a signed IRS Form 4506-T, the most recent two months of bank statements, a list of monthly expenses and debts, and proof that you live in the home.

You’ll also write a hardship letter. This is where many applications stall. The letter needs a clear narrative: what caused the delinquency, that the cause has been resolved, and that you can now make the full payment each month. Vague letters get flagged for follow-up and slow the whole process down. Be specific.

Once you submit the complete package, the servicer must acknowledge receipt within five business days and tell you if anything is missing.¹ Incomplete applications are the biggest source of delay. If a standalone partial claim is approved, you’ll receive the promissory note and second lien documents to sign. Return them promptly; the servicer then advances the funds and submits its insurance claim to HUD within 60 days.³

When You Have to Pay It Back

The subordinate lien is entirely passive until one of the following happens.¹

You sell the home. The balance comes out of the sale proceeds after the first mortgage is paid.
You refinance. The new loan must cover both the first mortgage payoff and the full partial claim balance.
Someone assumes your FHA mortgage. The partial claim must be settled at that point.
Title transfers, voluntarily or involuntarily.
The mortgage matures. When you make your final regular payment, the partial claim balance becomes due to HUD.

For most homeowners, sale is what eventually triggers repayment. In an appreciating market the balance is usually absorbed at closing without much friction. The pinch shows up if you sell in a flat or declining market and the first mortgage plus the partial claim approaches the sale price.

You can also pay off the partial claim voluntarily at any time. Request a payoff statement through your servicer or through HUD’s SMART Integrated Portal. Payment can be submitted via Pay.gov using the Single Family Notes Non-Lender Entry Form, or by mailing a cashier’s check or certified funds to HUD’s processing center along with a copy of the payoff letter.⁴ There’s no financial penalty for waiting, since the note carries no interest, but paying it off clears the lien from your title.

Where the Partial Claim Fits Among FHA’s Other Options

Your servicer doesn’t pick freely among options. HUD requires a structured evaluation sequence, working from the lightest touch downward.⁵ A repayment plan and forbearance come first. A standalone partial claim is next, aimed at borrowers who can resume the current payment but can’t clear the arrearage on their own. Below that sit loan modification, a combined modification and partial claim, and the Payment Supplement, followed by disposition options as a last resort.

The Payment Supplement is worth knowing about because it draws from the same 30% authority. It brings your mortgage current the way a standalone partial claim does, and then uses additional partial claim funds each month to cover part of your principal for 36 months, lowering your out-of-pocket payment temporarily. After three years you resume the full payment. The whole amount, arrearage cure plus 36 months of principal support, counts against your 30% lifetime cap. You can request early termination at any time; the servicer must then document how the funds were applied and issue a payoff statement.⁶

Tax and Credit Effects

A partial claim is a loan, not debt forgiveness. HUD advances funds and you owe them back when a triggering event occurs. Because no debt is being canceled, no Form 1099-C should be issued, and you should not have taxable income from receiving the partial claim. The IRS treats canceled debt as taxable income only when a lender forgives an obligation you were required to repay.⁷ If you later sell for less than the combined balances and HUD forgives the shortfall, that forgiven amount could be taxable at that point.

On credit, the months you were delinquent before the partial claim will generally remain on your credit report as late payments, and those marks can stay for up to seven years. Once the partial claim reinstates your mortgage, the servicer should report the account as current going forward.⁵ The partial claim itself is a subordinate lien held by HUD, not a traditional credit account, so it typically does not appear as its own tradeline. The real credit benefit is avoiding foreclosure, which damages a score far more severely and for far longer.

If Your Application Is Denied

You have appeal rights. Under CFPB Regulation X, if you submitted a complete application at least 90 days before any scheduled foreclosure sale, you can file an appeal within 14 days of receiving the denial notice. The appeal must be reviewed by different personnel than those who made the original decision, and the servicer has 30 days to issue a written determination.⁸ HUD also provides an automatic 90-day extension to the foreclosure initiation timeline when a servicer needs additional time to process a Regulation X appeal.⁵

Being denied for a standalone partial claim doesn’t end the process. Your servicer is required to evaluate you for every option below it in the sequence, including combination modifications and the Payment Supplement. If you believe your servicer isn’t following HUD’s rules, you can contact the FHA Resource Center at 1-800-225-5342 or answers@hud.gov.⁴

VA and USDA Borrowers

The partial claim tool described here applies to FHA-insured loans. Comparable programs exist for other government-backed mortgages. USDA’s version, called a Mortgage Recovery Advance, carries no interest, requires no monthly payments, and is capped at 30% of the unpaid principal balance at the time of the original default; the balance comes due when the mortgage matures, when you sell or transfer the property, or when the loan is paid off.⁹ For VA-guaranteed loans, the VA Home Loan Program Reform Act signed into law in July 2025 authorized a partial claim of up to 25% of the loan amount, limited to one-time use on a primary residence, with the missed payments tacked onto the end of the mortgage term. The VA is still implementing the program, so veterans should ask their servicer about current availability.

1
U.S. Department of Housing and Urban Development. FHA’s Loss Mitigation Program
2
Office of the Law Revision Counsel. 12 USC 1715u – Authority to Assist Mortgagors in Default
3
Department of Housing and Urban Development. HUD Proposes Updated Requirements for Partial Claim Payoff Statements and Recording Timeframes
4
U.S. Department of Housing and Urban Development. National Servicing Center
5
Department of Housing and Urban Development. Updates to Servicing, Loss Mitigation, and Claims
6
Department of Housing and Urban Development. Payment Supplement
7
Internal Revenue Service. Home Foreclosure and Debt Cancellation
8
eCFR. 12 CFR 1024.41 – Loss Mitigation Procedures
9
USDA Rural Development. HB-1-3555, Chapter 18 – Servicing Non-Performing Loans