What Is HUD Partial Claim & Notification?

The partial-claim loan can help borrowers get current on their mortgages.
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When borrowers fall behind or default on their FHA-insured mortgages, the federal government offers some options to help private lenders salvage the loan, including Partial Payment of Claim, or PPC. This is a second loan that brings the mortgage current. The Department of Housing and Urban Development, which runs the program, has attached several rules and restrictions to the partial-claim loan.


Partial-claim loans cannot exceed a year’s principal, interest, taxes and insurance. The borrower signs a promissory note and repays HUD when the first loan is paid off, or sells the house; the loan carries no interest until either of these conditions is met. In effect, the mortgage lender uses HUD funds to help the borrower bring the loan current.

Fees, Costs and Insurance

According to the partial-claim option rules, the lender may include fees and costs of any foreclosure actions in the repayment amount. However, the lender is also required to waive any late fees that have accumulated. The borrower must agree to partial payment of an FHA insurance claim (the insurance guaranteed the loan to the lender), and waive any pre-payment option the borrower may have had of the insurance premiums on the balance of the loan.


The borrower starts the process with notification to HUD of the delinquency. This is done with a letter explaining the reason for the late payments, proof of income, two years' worth of tax returns, bank account statements for at least three and no more than six months. The notification package is then sent to your lender, who forwards the information to HUD for approval. A HUD examiner will assess the borrower's ability to pay back the first loan as well as the partial-claim loan.

Second Default

If the borrower again defaults after using the partial-claim option, the lender can either foreclose on the home or do a loan modification. The partial-claim loan is made subordinate to the modified loan with its new terms of repayment. If the borrower fails to repay the partial-claim loan, then HUD begins collection actions against the borrower. The borrower must repay the partial-claim loan with a lump sum payment. If the borrower is more than 12 months behind on the mortgage, then he must come up with the funds to make up the difference between the 12-month maximum partial-claim loan and the overdue amount.

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