Partial Claim Security Deeds/Mortgages
When a borrower falls behind on mortgage payments due to financial hardship, the homeowner may have the option to modify the loan, get a “Partial Claim” mortgage, or both. (In Georgia, the Security Deed is used to encumber the real property and is commonly referred to as a Mortgage, even though they are different legal instruments).
Federal loan programs (FHA loans), offer an option where HUD pays the lender the amount past due. HUD then places a second mortgage on the property for that amount paid with HUD as the lender. This second mortgage will be recorded in the real estate records. This will lower the monthly payment and the principal balance of the first mortgage, providing some financial relief. The amount placed in the Partial Claim mortgage requires no monthly payment and does not accrue any interest. But it is neither a gift nor a grant. The Partial claim mortgage was funded by HUD and the loan must be paid in full when the property is sold, refinanced, or when the first mortgage is paid in full.
Homeowners often forget about the Partial-Claim mortgage because there are no monthly payments, and they do not receive a monthly statement. The first lender may insist there is only one payoff, but they cannot release the Partial Claim security deed because the lender on the Partial Claim is HUD. It will show up in a title search as a “Partial Claim Security Deed”, and it could have been filed many years ago. The homeowner benefitted from the second loan with the lower monthly payments and the loan is interest-free.
In the end, the Partial Claim mortgages must be paid in full when the property is sold, refinanced or when the first mortgage is paid in full. The Partial Claim mortgage will have a separate payoff from the first mortgage and must be provided by HUD. The payoff usually takes about 7-10 days to get from HUD.
John C. Bennett is a real estate closing attorney and owner of Origin Title and Escrow, Inc.. Since 2003, Origin Title has handled real estate transactions – purchases, refinances, reverse mortgages – quickly and professionally. There will be no surprises, nothing misunderstood. Title searches are thorough and well-reasoned, to avoid unpleasant surprises later down the road. Calculate your closing costs in Georgia or Florida using our calculator or contact Origin Title using this form.