Under the Partial Claim Option, the Lender will advance funds on behalf of the Borrower in an amount necessary to reinstate the delinquent loan (not to exceed the equivalent of 12 months PITI). The Borrower will execute a Promissory Note and Subordinate Mortgage payable to HUD. Currently, these Promissory or “Partial Claim” Notes assess no interest and are not due and payable until the Borrower either pays off the first mortgage or no longer owns the property.
Question 1: In utilizing the Partial Claim Option to bring an asset current, can the Lender include all fees and corporate advances?
Answer: Mortgagee Letter 2008-21, states in part, that legal fees and related foreclosure costs for work actually completed and applicable to the current default episode may be included in the Partial Claim amount.
Question 2: A Loan Modification was completed; the Borrower subsequently defaults again under different circumstances; it’s been less than 12 months since the Loan Modification was completed; can the Lender consider a Partial Claim?
Answer: Yes, if the Borrower meets the qualifying criteria, the Lender can consider using a Partial Claim to assist the Borrower in avoiding foreclosure. The Lender should ensure there is a valid documented reason for the default that meets the criteria reflected in Mortgagee Letter 2003-19, page 6, Paragraph N, Limitations on Use. It is up to the Lender to fully document the servicing file with the reason a Partial Claim is needed.
Question 3: Can a Lender include late charges in the Partial Claim?
Answer: Mortgagee Letter 2008-21 states that the accrued late charges should be waived by the Lender at the time of the Partial Claim.
Question 4: Must a Partial Claim be deducted from the Net Proceeds of a Preforeclosure Sale?
Answer: Yes, when using the Preforeclosure Sale Program after a Partial Claim was provided on an earlier default, the Lender must include the Partial Claim amount when calculating total indebtedness for the purpose of a Preforeclosure Sale.
Question 5: Can the Lender collect administrative fees and costs associated with the preparation of the Partial Claim Subordinate Note and Mortgage?
Answer: No. Mortgagee Letter 2003-19, Page 6, Paragraph L, “Mortgagee Incentives” states in part: The Borrower may not be charged any additional costs for receiving this Loss Mitigation Workout Option.
Question 6: A Partial Claim was executed two years ago, now the Borrower has re-defaulted on the loan, will HUD subordinate the Partial Claim so the Lender can complete a Loan Modification?
Answer: Yes, HUD will subordinate the Partial Claim so the Lender can complete the Loan Modification. The Lender should contact HUD’s Contractor at (877) 622-8525 to ascertain all language requirements and terms that must be evident within the Subordination Document.
Question 7: Regarding the five business day submittal for recordation and the 60-days from date of execution for filing the claim criteria stipulated in Mortgagee Letter 2003-19, what are the procedures for those Partial Claim properties in jurisdictions that require execution of the subordinate agreement by a HUD official and is there any situation where it would be appropriate for a Lender to exceed the five business day requirement?
Answer: Mortgagee Letter 2003-19, dated November 20, 2003, states in part:
O. Recordation Requirements
Upon execution of a Partial Claim by the Borrower, the Department requires that the Partial Claim Security Instruments be submitted for recordation to the appropriate jurisdiction within a maximum period of five business days following the execution AND prior to filing a claim with HUD.
The responsibility for servicing of the Partial Claim remains with the Lender until the security interests are legally recorded in the appropriate jurisdiction.
The above paragraph is threefold; (1) execution of documents by Borrower (Lender should specify “deadline date” for Borrower to return), (2) Lender receives the executed documents back; therefore, (3) asset is eligible for filing of claim and sending executed documents for recordation (Block 9 of Insurance Benefit Claim is the date that the Lender mails documents for recordation).
HUD’s reviewers will look at the time line at each stage, expecting the Lender to expedite all actions within its control to meet the maximum five business days following the execution and prior to filing a claim with HUD.
For the Partial Claims that require HUD Official Signature, the following applies – (a.) execution of documents by Borrower (Lender should specify “deadline date” for Borrower to return), (b.) Lender receives the executed documents back and then forward to the National Servicing Center, Oklahoma City, OK for HUD Signature and (c.) with the exception that the maximum five business days will begin after the Lender has received the returned documents executed by HUD Official. As of this writing, these states include Louisiana, Oklahoma, Maryland, and three counties in California.
Question 8: What is the collection process on a Partial Claim that is not collected from the Borrower at the time the Borrower pays off their FHA first mortgage?
Answer: The collection process on a Partial Claim that is left unpaid at the time the Borrower pays off their FHA first mortgage is the Department bills the Borrower directly. The Partial Claim debt is not forgiven and the Borrower is required to make a lump sum payoff.
Question 9: At what point does the Lender’s responsibility for a Partial Claim end?
Answer: The Lender’s responsibility for a Partial Claim ends when the following two events occur: (a.) HUD receives the executed Subordinate Mortgage and (b.) When any requests for payoff of the first lien occur, the Lender is obligated to notify HUD to obtain full payoff amount of the Partial Claim and supply that information to the Borrower.
Question 10: Will a Borrower qualify for a Partial Claim when the FHA asset is less than 12 months old?
Answer: Yes, if the financial analysis reflects the Borrower has the ability to support the normal monthly payment, and the Borrower is an owner-occupant committed to continuing occupancy of the property as a primary residence. However, in no case may a Partial Claim be used if the Borrower’s surplus income percentage is 0% or less.
Question 11: Can a Partial Claim be used if the Borrower is 14 months delinquent?
Answer: Per Mortgagee Letter 2003-19, under Definition and Existing Guidance, 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 worth of principal, interest, taxes, and insurance (PITI)). Therefore, the Borrower would have to have sufficient funds to pay towards the arrearage, so that it is no more than 12 months delinquent.