A partial claim mortgage might sound like a complicated term, but it could be a lifeline for many homeowners struggling with monthly mortgage payments. This type of mortgage modification allows homeowners affected by financial hardships—such as those caused by COVID-19—to get back on track without losing their homes.
So, what is a partial claim mortgage modification? Essentially, it is an interest-free loan from the U.S. Department of Housing and Urban Development (HUD) that helps homeowners with a mortgage insured by the Federal Housing Administration (FHA) avoid foreclosure.
If you’re a homeowner in Pennsylvania or New Jersey and feel overwhelmed by your mortgage payments, Sadek Bankruptcy Law Offices can help you understand your options and guide you through the process of obtaining a partial claim mortgage modification.
Contact us online to learn how we can help you regain control of your finances and protect your home.
Loss Mitigation and Avoiding Foreclosure
Loss mitigation is a process that helps struggling borrowers avoid foreclosure by working with their mortgage servicer to find a solution that fits their financial situation. For FHA-insured homeowners, FHA loss mitigation options are available to temporarily reduce the borrower’s monthly mortgage payment or extend the loan term to make payments more manageable.
These options can include a repayment plan, forbearance plan, or a permanent loss mitigation option. In the wake of COVID-19, the FHA introduced special COVID-19 loss mitigation options to assist homeowners in financial distress. By taking advantage of these programs, borrowers can avoid foreclosure and stay in their homes while working toward a sustainable financial recovery.
What Happens When Someone Falls Behind on Their Monthly Mortgage Payments?
When you miss your monthly mortgage payments, your mortgage servicer will typically reach out to you to discuss your situation. If you’re facing financial difficulties, they may offer options like a repayment plan or forbearance to help you catch up on missed payments. However, if you continue to miss payments, late fees can add up, and your lender could eventually start the foreclosure process in Pennsylvania.
Thankfully, there are programs available, such as FHA loss mitigation, that may help you modify your loan terms or reduce your payments to avoid foreclosure and stay in your home.
What Is a Partial Claim Mortgage?
A partial claim mortgage is an interest-free loan that helps homeowners who have fallen behind on their mortgage payments. It allows the homeowner to defer missed payments by creating a subordinate lien that does not require repayment until the first mortgage is paid off, refinanced, or the property is sold.
This option is often used in situations where homeowners, particularly those with FHA-insured mortgages, have experienced financial hardship, such as job loss or illness, and need relief to catch up on their monthly mortgage payments without immediately increasing their financial burden.
Partial Claim vs Loan Modification
The main difference between a “partial claim” and a “loan modification” lies in how they provide mortgage relief to eligible borrowers.
A partial claim creates a subordinate mortgage to cover missed monthly payments. The borrower signs a promissory note for the amount of missed payments, which does not accrue interest and is only repaid when the mortgage loan is paid off, refinanced, or the property is sold. It does not change the terms of the original mortgage.
On the other hand, a loan modification alters the original mortgage terms, often by reducing interest rates, extending the loan term, or adjusting monthly payments to make them more manageable. Unlike a partial claim, the loan modification is built into the current mortgage, and borrowers continue to make regular payments under the new terms.
Both options provide mortgage relief but are structured differently to help homeowners depending on their circumstances.
Types of Partial Claim Mortgages
Partial claim mortgages come in different forms, each tailored to help borrowers facing specific financial difficulties. These options, commonly offered through federal programs, are designed to assist homeowners by deferring missed payments and preventing foreclosure.
Two of the most common types of partial claim mortgages are those offered through the FHA (Federal Housing Administration) and HUD (Department of Housing and Urban Development). These programs provide distinct relief strategies for homeowners with FHA-insured mortgages or those in need of additional financial assistance to keep their mortgage current.
FHA Partial Claim
The Federal Housing Administration (FHA) offers several types of partial claims to assist FHA homeowners facing financial difficulties.
One option is the COVID-19 Standalone Partial Claim, specifically designed to help FHA homeowners affected by the COVID-19 pandemic. Through this program, the partial claim funds are used to cover missed payments and restore the mortgage to current status without altering the original loan terms. It’s a critical part of the COVID-19 recovery efforts, helping borrowers with an FHA-insured mortgage avoid foreclosure while keeping their homes.
Another option is the Payment Supplement Partial Claim, which temporarily reduces the monthly payment amount by covering the difference between what the borrower can pay and the required mortgage amount.
For more significant hardships, the FHA HAMP (Home Affordable Modification Program) combines a loan modification and partial claim to reduce the borrower’s unpaid principal balance and create a more affordable payment plan.
Finally, Special Forbearance allows eligible borrowers to temporarily reduce or suspend payments, with the partial claim helping to cover the missed payments once the forbearance period ends.
HUD Partial Claim
The U.S. Department of Housing and Urban Development (HUD) offers partial claim programs that provide an interest-free loan to cover missed mortgage payments. The loan becomes a subordinate lien on the property, which means it must be repaid only when the home is sold, refinanced, or the original mortgage is paid off.
The HUD partial claim typically covers the principal and interest portion of the missed payments, helping bring the mortgage current. Additionally, programs like the Homeowner Assistance Fund may be available for borrowers who need more assistance managing their monthly mortgage obligations.
By using this method, HUD helps homeowners reduce their monthly mortgage payment strain while allowing them to remain in their homes without immediate financial pressure.
How Many Partial Claims Can You Have?
You can have more than one partial claim on your FHA-insured mortgage, but the total amount of all partial claims combined cannot exceed 30% of your unpaid principal balance at the time of the first claim. Each partial claim is an interest-free loan that doesn’t need to be repaid until the mortgage is paid off, the house is sold, or the loan is refinanced.
While multiple claims are possible, they are generally granted based on specific circumstances like financial hardship or natural disasters, and eligibility is determined by FHA guidelines.
Ways to Avoid Foreclosure
There are several ways to avoid foreclosure if you’re struggling to make your regular monthly mortgage payments and facing imminent default. Depending on your situation, federal assistance like the FHA COVID-19 loss mitigation options can help.
These programs assist borrowers by offering options like mortgage forbearance, repayment plans, loan modifications, and partial claims. These solutions lower or postpone the borrower’s mortgage payments, giving you more time to get back on track and avoid losing your home.
Mortgage Forbearance Agreements
A mortgage forbearance agreement allows you to temporarily stop or reduce your monthly mortgage payment when you’re facing financial difficulties. During the forbearance period, your lender gives you time to get back on your feet. Once the forbearance period ends, you’ll need to resume making your regular monthly payments. This option can give you the breathing room you need to avoid foreclosure while working through tough times.
Repayment Plans
A repayment plan lets you catch up on missed mortgage payments over time instead of paying everything at once. Your lender will work with you to add a portion of the missed payments to your regular mortgage payment. This spreads the missed payments over several months, making it easier to manage. A repayment plan is a great option if you’ve regained enough income to handle your regular payments and the extra amount needed to catch up.
Loan Modification to Reduce Monthly Mortgage Payment
A loan modification changes the mortgage terms to reduce the borrower’s monthly payment and make it more affordable. This might involve extending the loan term, lowering the interest rate, or adjusting the balance. Your loan servicer will work with you to create new payment terms that better fit your financial situation, helping you avoid foreclosure by making your mortgage payment easier to manage.
Partial Claim
A partial claim is a useful option, especially if you have an FHA-insured mortgage. In this case, your lender creates a second lien on your home for the partial claim amount, which covers the missed mortgage payments. The best part is that you don’t have to pay this amount back until your original mortgage is paid off, your home is sold, or you refinance. This allows you to continue making your regular mortgage payment while deferring the missed payments, helping you avoid immediate financial pressure and stay in your home.
How Can Bankruptcy Help You Avoid Foreclosure?
Filing for bankruptcy can help you avoid foreclosure by providing immediate legal protection through an automatic stay, which temporarily stops all foreclosure proceedings. This gives you time to either restructure your debts or catch up on missed payments while protecting your home. Depending on the type of bankruptcy you file, you may have different options to manage your mortgage and work toward long-term financial relief.
Chapter 7 Bankruptcy
In Chapter 7 bankruptcy, the court discharges most of your unsecured debts, such as credit cards or medical bills, giving you a clean slate. While it won’t allow you to catch up on missed mortgage payments, the automatic stay that goes into effect as soon as you file can delay foreclosure for a few months, giving you extra time to negotiate with your lender or explore other options to save your home.
Although Chapter 7 doesn’t directly resolve mortgage debt, it eliminates other financial obligations, freeing up more money to potentially help you resume making payments on your mortgage.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy is more geared toward helping homeowners avoid foreclosure. In this type of bankruptcy, you can set up a repayment plan to catch up on your missed mortgage payments over three to five years while continuing to make your regular payments. The automatic stay also protects you from foreclosure during this time, giving you the legal protection other options may not. Chapter 13 offers a structured path to keeping your home and managing your debt, allowing you to regain control of your finances without losing your property.
Contact Sadek Bankruptcy Law Offices Today to Avoid Foreclosure
If you’re facing foreclosure and need help weighing your financial options, a Philadelphia bankruptcy attorney at Sadek Bankruptcy Law Offices can provide the guidance you need.
Whether you’re considering a partial claim mortgage modification, Chapter 7 or Chapter 13 bankruptcy, our experienced attorneys will work with you to find the best solution. With our help, you can protect your home and regain control of your finances.
Contact us online today, and let us help you take the first step toward protecting your home.