FHA Single Family Housing Policy Handbook 4000.1, III. SERVICING AND LOSS MITIGATION > A. Title II Insured Housing Programs Forward Mortgages > 2. Default Servicing — d. Partial Payments for Mortgages in Default

HUD Handbook 4000.1 III.A.2.d

Effective 2025-10-01 · publisher's stamp for this provision

In force by default — effective 2025-10-01. This is the version that governs unless your firm has adopted the Update 18 revision.

d. Partial Payments for Mortgages in Default (10/01/2025) i. Acceptance of Partial Payments Unless subject to the exceptions in the Return of Partial Payments for Mortgage in Default section, the Mortgagee must accept any Partial Payment and either: • apply the payment to the Borrower’s account; or • identify the payment with the Borrower’s account and hold the payment in a suspense account. When a full monthly installment due under the Mortgage is accumulated, the Mortgagee must apply that amount to the Borrower’s account. ii. Application of Partial Payments Totaling a Full Monthly Payment (A) Standard When Partial Payments held for disposition total a full monthly Mortgage Payment, the Mortgagee must apply Borrower payments, in the following order, to: • MIPs due, if any; • charges for Ground Rents, taxes, special assessments, including any assessments related to a PACE obligation, flood insurance premiums, if required, and fire and other hazard insurance premiums; • interest on the Mortgage; • amortization of the principal of the Mortgage; and • Late Charges, provided that any amounts owed for Late Charges must be handled consistent with Truth in Lending Act (TILA) regulations. This application of Partial Payments as a full monthly installment advances the date of the oldest unpaid installment, but not the initial date of Default. (B) Required Documentation When applying Partial Payments totaling a full monthly Mortgage Payment, the Mortgagee must: • report the appropriate Status Code in the Single Family Default Monitoring System (SFDMS); and • advance the Oldest Unpaid Installment (OUI) date one month. iii. Return of Partial Payments for Mortgages in Default (A) Standard If the Mortgage is in Default, the Mortgagee may return the Partial Payment to the Borrower with a letter of explanation only under the following circumstances: • when the payment represents less than half of the full amount due under the terms of the Mortgage, including Late Charges, at the time the payment is tendered; • when the payment is less than the amount agreed to in a Forbearance or Repayment Plan; • when the payment is less than the amount stated in an approved Trial Payment Plan (TPP) Agreement; • when the Property is occupied by a rent-paying tenant and the rents are not being applied to the Mortgage Payments; • when the first legal action to initiate foreclosure has been completed; or • when it is 14 Days or more after the Mortgagee has mailed the Borrower a statement of the full amount due, including Late Charges, which advises that it intends to refuse to accept future Partial Payments (see Application of Subsequent Payment to Unpaid Late Charges), and either of the following conditions have occurred: o four or more full monthly installments are due but unpaid; or o a delinquency of any amount, including Late Charges, has continued for at least six months since the account first became Delinquent. (B) Required Documentation The Mortgagee must ensure that its Servicing File reflects any Partial Payments returned to the Borrower and includes any letters of explanation for the returned payments.

Update 18 revision — optional now, mandatory 2026-11-10. Issued 2026-08-12 and stamped effective 2026-11-10. HUD's transmittal permits implementation immediately; it becomes required on 2026-11-10. A firm that has already adopted Update 18 should read this version.

d. Partial Payments for Mortgages in Default (11/10/2026) i. Acceptance of Partial Payments Unless subject to the exceptions in the Return of Partial Payments for Mortgage in Default section, the Mortgagee must accept any Partial Payment and either: • apply the payment to the Borrower’s account; or • identify the payment with the Borrower’s account and hold the payment in a suspense account. When a full monthly installment due under the Mortgage is accumulated, the Mortgagee must apply that amount to the Borrower’s account. ii. Application of Partial Payments Totaling a Full Monthly Payment [Text was deleted in this section.] (A) Standard When Partial Payments held for disposition total a full monthly Mortgage Payment, the Mortgagee must apply Borrower payments, in the following order, to: • MIPs due, if any; • charges for Ground Rents, taxes, special assessments, including any assessments related to a PACE obligation, flood insurance premiums, if required, and fire and other hazard insurance premiums; • interest on the Mortgage; • amortization of the principal of the Mortgage; and • Late Charges, provided that any amounts owed for Late Charges must be handled consistent with Truth in Lending Act (TILA) regulations. This application of Partial Payments as a full monthly installment advances the date of the oldest unpaid installment. (B) Required Documentation When applying Partial Payments totaling a full monthly Mortgage Payment, the Mortgagee must: • report the appropriate Status Code in the Single Family Default Monitoring System (SFDMS); and • advance the Oldest Unpaid Installment (OUI) date one month. iii. Return of Partial Payments for Mortgages in Default (A) Standard If the Mortgage is in Default, the Mortgagee may return the Partial Payment to the Borrower with a letter of explanation only under the following circumstances: • when the payment represents less than half of the full amount due under the terms of the Mortgage, including Late Charges, at the time the payment is tendered; • when the payment is less than the amount agreed to in a Forbearance or Repayment Plan; • when the payment is less than the amount stated in an approved Trial Payment Plan (TPP) Agreement; • when the Property is occupied by a rent-paying tenant and the rents are not being applied to the Mortgage Payments; • when the first legal action to initiate foreclosure has been completed; or • when it is 14 Days or more after the Mortgagee has mailed the Borrower a statement of the full amount due, including Late Charges, which advises that it intends to refuse to accept future Partial Payments (see Application of Subsequent Payment to Unpaid Late Charges), and either of the following conditions have occurred: o four or more full monthly installments are due but unpaid; or o a delinquency of any amount, including Late Charges, has continued for at least six months since the account first became Delinquent. (B) Required Documentation The Mortgagee must ensure that its Servicing File reflects any Partial Payments returned to the Borrower and includes any letters of explanation for the returned payments.

Source: FHA Single Family Housing Policy Handbook 4000.1, Update 18 (issued 2026-08-12) · source URL · snapshot 8c03836f77f317e1