FHA Partial Claim: How HUD’s Zero-Interest Second Lien Works

Published by the Modern Lending Solutions editorial team. Last reviewed: October 30, 2026.

Short answer: an FHA partial claim is money HUD pays your servicer to bring a past-due FHA loan current. In return you sign a promissory note and a second mortgage in favor of HUD that charges no interest and needs no monthly payments. You repay it when the first mortgage ends: when you sell, refinance, pay it off or reach the maturity date, among other events. All partial claims on a loan together cannot exceed 30 percent of the unpaid principal balance. This page covers federal rules only. It is general information, not legal or financial advice.

What the law allows

The National Housing Act requires servicers of FHA-insured loans in default or imminent default to engage in loss mitigation as an alternative to foreclosure (12 U.S.C. 1715u(a), LII, read October 30, 2026). It lets HUD pay a partial claim to the servicer, capped at 30 percent of the unpaid principal balance plus certain costs, applied first to the past-due amount and possibly also to reduce principal. You agree to repay HUD, and expenses for the partial claim or a modification may not be charged to you (12 U.S.C. 1715u(b)(2)(A)-(C) and (E)).

How HUD sets it up

HUD Handbook 4000.1 defines a partial claim as FHA’s reimbursement of money the servicer advances for you to reinstate the loan and, where applicable, to defer principal (III.A.2.i.iv, HUD, Handbook update issued August 12, 2026, read October 30, 2026). Under the Handbook:

the partial claim is secured by a zero interest subordinate note and mortgage you sign in favor of HUD, and no interest accrues on it;
it must fully reinstate the loan, alone or combined with a loan modification;
the minimum is $1,000, apart from certain disaster cases;
it covers the past-due amounts, and the servicer may add one more monthly payment to allow time to return the signed papers; no other fees or costs may be included;
the total of all partial claims and payment supplements on the loan may not exceed 30 percent of the unpaid principal balance as of the date of default when the first partial claim was paid, and that figure stays the same for the life of the loan; and
you must complete a trial payment plan before you sign the partial claim papers.

HUD marks this part of the Handbook (III.A.2.i, Loss Mitigation Home Retention Options) with an effective date of November 10, 2026, which is after our read date, so the version your servicer applies before then may differ. Mortgagee Letter 2026-08 (June 23, 2026) changed the trial payment plan rules: three months, or four months for a borrower in imminent default, with a trial plan treated as failed if a borrower fails to accept a trial plan agreement for a third time (HUD, read October 30, 2026). We found no change to the 30 percent cap in it.

When you repay it

The Handbook says HUD will not require payment on the partial claim until the first of these (III.A.2.i.iv(I)):

the maturity of the first mortgage;
the sale or transfer of the home, with an exception for certain non-borrowers who got title through an exempted transfer;
an assumption of the mortgage, with the same exception;
the payoff of the mortgage, although HUD will agree to stay second behind an FHA streamline refinance; or
if the note provides for it, the end of FHA insurance on the loan.

You may pay part or all of it earlier. When the first mortgage is being paid off or refinanced, the servicer must notify HUD and get a payoff quote for the partial claim from HUD’s loan servicing contractor (III.A.2.i.iv(M)). Ask for that quote before you list the home or apply for a refinance.

Where it fits among FHA options

A standalone partial claim is for a borrower who attests they can resume their regular payment. The Handbook requires the servicer to compare it with a standalone loan modification at the market rate over 30 years, and to offer the modification if it lowers principal and interest by at least $1 a month, to save partial claim funds (III.A.2.i.iv(G)). A partial claim can also be combined with a loan modification, and the payment supplement uses partial claim funds to bring the loan current and then lower the principal due each month for 36 months (III.A.2.i.vi). If keeping the home will not work, see short sale vs deed in lieu. FHA mortgage insurance stays in place on the first mortgage; see FHA mortgage insurance premiums.

Example: the cap and one partial claim

This example is only for the math, with example figures, not terms from any servicer. It assumes no earlier partial claim and leaves out the optional extra monthly payment.

Item	Amount
Unpaid principal balance on the date of default (example)	$200,000
Cap: $200,000 × 30%	$60,000
Past-due amount: 6 missed payments × $1,600	$9,600
Partial claim (zero interest, no monthly payment)	$9,600
Cap left for a later default: $60,000 − $9,600	$50,400

If you later sell, the $9,600 is repaid from the sale along with the first mortgage. Because the cap is fixed at the first partial claim, a later default can draw only on the $50,400 left.

Your rights while you apply

Under Regulation X, if a servicer receives your complete loss mitigation application more than 37 days before a foreclosure sale, it must evaluate you for all options available to you and tell you in writing within 30 days which, if any, it will offer (12 CFR 1024.41(c)(1), eCFR, text up to date as of October 28, 2026). A servicer may not make the first foreclosure notice or filing until the loan is more than 120 days delinquent, apart from listed exceptions (1024.41(f)(1)). If your complete application arrives after that first notice or filing but more than 37 days before a sale, the servicer may not move for judgment or sale until the listed conditions are met (1024.41(g)). If your complete application arrives 90 days or more before a sale, you may appeal a denial of a loan modification within 14 days (1024.41(h)). For your contact person at the servicer, see your mortgage servicer’s single point of contact. For questions about a foreclosure case, talk to a lawyer.

A note on the citations

HUD’s regulation on partial claims, 24 CFR 203.371 (eCFR, text up to date as of October 28, 2026), was last amended in 2007 and still lists older conditions, such as an arrearage of no more than 12 monthly payments. The statute now sets the 30 percent cap, and the Handbook applies it, so ask your servicer which conditions it uses for your loan.

Questions to ask the servicer

Which FHA loss mitigation options am I being reviewed for, and in what order?
How much partial claim money is left on my loan under the 30 percent cap?
What exactly will the partial claim cover, and will an escrow analysis be done first?
How long is my trial payment plan, and what payment is due each month?
When will the HUD note and second mortgage be recorded, and who do I call for a payoff quote later?

Checklist

Send a complete loss mitigation application as early as you can.
Make every trial payment by the due date.
Read the HUD note and second mortgage before you sign, and keep copies.
Note that the partial claim must be repaid when you sell or refinance.
Talk to a HUD-certified housing counselor if you are unsure which option fits.

The CFPB explains what servicers must do to help you avoid foreclosure (CFPB). To find housing counseling agencies that HUD has vetted, use the CFPB housing counselor search. You can submit a complaint at consumerfinance.gov/complaint.

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Disclosure: Modern Lending Solutions is not a lender, loan broker or agent for any lender or loan broker, and does not make credit decisions. Any compensation we receive is paid by participating lenders, only for advertising services. This guide is general information, not financial or legal advice.

FHA Partial Claim: Catching Up With a Zero-Interest Second Lien