A low-rate FHA loan can be current, with every monthly payment made, and still have a second lien behind it: a HUD partial claim. If the seller had trouble making payments, HUD may have paid the servicer to bring the loan current or lower the payment, and taken a separate lien for that amount. Sellers sometimes describe it as payments that were “deferred” or “moved to the end of the loan.”
This guide covers an ordinary sale where you assume the seller’s FHA loan. Transfers to a spouse, child or heir, or in a divorce, can be handled differently and aren’t covered here.
Why the monthly statement may not show it
The partial claim is owed to HUD, not to the company that services the seller’s first mortgage, and it usually has no monthly payment of its own. That makes it easy to miss. A statement from the first-mortgage servicer saying nothing else is owed doesn’t settle the question.
Check the preliminary title report for any lien recorded in favor of the Secretary of Housing and Urban Development, and ask the seller for the partial claim documents. If the loan was modified when the claim was created, the balance, rate and payment you would take over are the modified ones, so work from the servicer’s verified figures. Our FHA mortgage insurance guide covers the insurance part of that payment.
In an assumption sale, the claim is paid at closing
HUD’s rules make the partial claim due when the FHA loan is assumed in an ordinary sale (HUD Handbook 4000.1). You take over the first mortgage, but the partial claim doesn’t come with it. It is paid off from the sale, and the lien is released.
The payoff comes from HUD’s servicing contractor, not from the seller’s monthly servicer. The official payoff can be requested by the servicer handling the assumption, by the seller or by an authorized party such as the title company. Escrow pays it at closing, and the title company confirms the release is recorded. HUD says it doesn’t accept wire transfers for these payoffs and that a payoff statement with wiring instructions is fraudulent.
Where the money goes: an example
Say a home is priced at $700,000 and the servicer’s verified balance on the FHA loan you would assume is $480,000. The official payoff on the seller’s partial claim is $40,000, and the contract has it paid from the seller’s proceeds.
| Item | Amount |
|---|---|
| Price | $700,000 |
| FHA loan balance you would assume | $480,000 |
| Your cash toward the price, before your own closing costs | $220,000 |
| Paid from that to pay off the partial claim | $40,000 |
| Left for the seller, before selling costs | $180,000 |
In this example, your cash toward the price is $220,000, not $260,000. The claim is paid out of money you are already putting into the purchase, so adding it on top would count it twice. Your own closing costs are separate; our assumption closing-cost guide covers them.
Your number can still move. A different verified balance, a different split of costs in the contract or the financing you are approved for can all change it. If the seller’s share can’t cover the claim and their selling costs, the seller would have to bring cash to closing, or the deal has to be renegotiated. The second-lien payoff guide walks through the same math for other liens.
What to get in writing before you commit
- The partial claim documents, and every HUD lien shown on the preliminary title report.
- The official payoff from HUD’s servicing contractor, and who will make sure the release is recorded.
- The servicer’s verified assumption terms: balance, rate, payment and remaining term, including any modification.
- A contract that says the claim is paid from the seller’s proceeds at closing.
If you plan to cover part of the gap with a second loan of your own, that is a separate financing question with its own approval; our FHA and VA assumption guide covers the process. If the home has a VA loan instead, VA has its own partial claim rules; see assuming a VA loan when the seller is behind.
Questions about FHA assumptions with a partial claim
Can I assume an FHA loan if the seller has a HUD partial claim?
Yes, if you qualify for the assumption. In an ordinary sale, the partial claim doesn’t transfer with the loan. It is paid off at closing, usually from the seller’s proceeds, and the lien is released.
Do I have to pay the seller’s partial claim?
Not on top of your purchase money. When the contract has the claim paid from the seller’s proceeds, your cash toward the price is still the price minus the verified loan balance. The contract, your closing costs and your financing can change your total.
Why doesn’t the seller’s mortgage statement show the partial claim?
The claim is owed to HUD, not to the servicer of the first mortgage, and it usually has no monthly payment. Check the preliminary title report and get the official payoff from HUD’s servicing contractor.
Who requests the partial claim payoff?
The servicer handling the assumption, the seller or an authorized party such as the title company can request the official payoff from HUD’s servicing contractor. Escrow pays it at closing. HUD says a payoff statement with wiring instructions is fraudulent.