December 18, 2023

fha short sale
what is a partial claim?

Have you fallen  behind with your FHA loan and need out?

FHA has been very busy handing out loan workouts for the last few years. Since the beginning of Covid-19, FHA has been offering loan modifications, forbearance and partial claims like candy, even to borrowers who never asked for or needed them, and with no borrower financial documentation involved.

Many homeowners have enjoyed not paying their mortgage for some time, or getting a lower payment. However, the fact is there really are no free rides and all these loan workouts have a cost – that cost usually being most or all of the homeowners equity, through a HUD Partial Claim (silent second mortgage).

What’s the downside of a lower payment, even if you lose your equity?

Theoretically there is no problem with losing some home equity as long as you never need to move and/or homes keep appreciating. The problem is that the market has started shifting and many home values are even declining in our current market. Furthermore, life has a way of happening and staying in the same home indefinitely is simply not a realistic option for most people, and selling becomes a necessity rather than a choice.

What happens if you have to sell and you don’t have the equity to do so?

If you owe more on your mortgage than your home could sell for you have two choices to sell: Pay the difference out of pocket, or pursue a short sale. In a short sale the lender allows the property to sell and agrees to take a loss on the mortgage debt in order to make a sale possible. Lenders do this because it is more profitable than foreclosing on the home. There is a process required, including a lengthy financial disclosure process to prove the inability to pay. FHA has currently suspended this process…

fha short sale process

The COVID 19 Streamline Short Sale!

FHA has always offered a short sale program ( FHA Pre-foreclosure Sale), which had a standard process, including financial documentation. Effective 2023, FHA suspended their standard short sale process, in favor of the Streamline COVID-19 short sale which eliminates borrower financial documentation and is a much simpler easier process. This program will run through October 2024, making it the easiest time in history to get your short sale approved.


Last Updated on December 26, 2023 by Minna Reid

About the author 

Minna Reid

Minna Reid is The Broker - Owner of Reid Real Estate Group. Reid Real Estate Group is a full-service Connecticut residential real estate brokerage, specializing in helping homeowners with legal and financial challenges including short sales, probate sales and tax lien complications.

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