High Level Overview of Draft Guidance for the New VA Partial Claim Program

The VA Loan Guaranty is utilizing the Drafting Table for the first time to announce proposed updates to the Loss Mitigation Waterfall and outline guidance for the new VA Partial Claim Program. Please note that the deadline for submitting feedback to the VA is March 11, 2026, at 11:59 p.m.

Under the Draft Loss Mitigation Chapter 5, the Partial Claim is proposed as Step 7 in the Waterfall. This placement is after the 30-year modification review but before the 40-year modification.

Notably the Draft Partial Claim Policy, suggests adopting a Servicer Advance Model, similar to the USDA's Amended Mortgage Recovery Advance. Before a Partial Claim can proceed, the borrower must first complete a Trial Payment Plan (TPP). Furthermore, eligibility is restricted to borrowers who have not previously received a partial claim or a VA COVID-19 Refund Modification.

The proposed policy is notably missing language from the Continuing Appropriations Act concerning non-judicial foreclosures and the Show Me decision, a point that stands out.

The following points offer a brief overview and do not cover everything. For complete details, please refer to the full draft documents.

OVERVIEW:

“When the servicer is required under the Waterfall to evaluate a loan for a PC, the servicer must determine whether the qualifying criteria for a PC are met. If the criteria are met, the servicer must offer the borrower a Trial Payment Plan (TPP) under section 22.03, which, if successful, will lead to a PC. If the criteria are not met, the loan will not qualify for a PC, and the servicer must continue to the next step in the Waterfall.”

PARTIAL CLAIM QUALIFIYING CRITERIA:

1. The amount necessary to bring the loan current (reinstatement amount) does not exceed the applicable limit:

• For all loans EXCEPT those where the past due amount includes a payment that was missed during the period beginning on March 1, 2020, and ending on May 1, 2025: The amount calculated to reinstate the loan, after factoring in the payments a borrower would make under the requisite TPP, would not exceed 25% of the unpaid principal balance on the day the servicer would advance the funds for the PC.
• For loans where the past due amount includes a payment that was missed during the period beginning on March 1, 2020, and ending on May 1, 2025: The servicer would make the same calculations as described in section 22.02 a.1.(a). HOWEVER, the reinstatement amount cannot exceed 30% of the unpaid principal balance, rather than 25%.

1. The servicer determines the guaranteed loan would be at least three (3) full months past due on the date the servicer would submit the Partial Claim TPP event in the Veterans Affairs Loan Electronic Reporting Interface (VALERI).
2. The servicer confirms that the property is the borrower’s primary residence, which is defined as the property the borrower resides in for a majority of the calendar year.
3. The servicer has confirmed that the borrower is not in active bankruptcy.
4. The servicer confirms the VA-guaranteed loan remains in first lien position.
5. The servicer has not been notified of any pending or active foreclosures (for example, those brought by a Homeowner’s Association or any other lien holder).
6. The borrower has made at least twelve (12) monthly payments on the guaranteed loan since origination.
7. The servicer has confirmed that the borrower is the current legal owner of record, and all individuals obligated on the guaranteed loan promissory note are willing and able to execute the Partial Claim Attestation Document timely, as specified in section 22.03
8. VA has not paid any of the following for the guaranteed loan:

• (a) a VA Partial Claim under 38 U.S.C. § 3737;
• (b) a COVID-19 Veterans Assistance Partial Claim Payment under subpart F, part 36, title 38, C.F.R.; or
• (c) a COVID-19 Refund Modification

TPP BEFORE PARTIAL CLAIM:

• If the servicer determines all qualifying criteria in section 22.02 are met, the servicer must offer the borrower a TPP. A TPP allows the borrower to demonstrate the borrower has overcome the reason for default and is ready to resume making payments. Servicers will only offer a TPP when the qualifying criteria are met, and a PC can only be made upon successful completion of the TPP.

VA PARTIAL CLAIM TERMS AND ADVANCE- Proposing No Physical 2nd Lien:

• The Servicer must structure the PC transaction as a servicer recovery advance, similar to the structure of the United States Department of Agriculture’s Mortgage Recovery Advance under 7 C.F.R. § 3555.303(b)(4).
• For VA’s PC, the servicer advances the reinstatement amount on behalf of the borrower and creates a non-interest-bearing recoverable balance (this is sometimes referred to as a zero-interest suspense account). The servicer must ensure that the PC remains part of the first lien. While part of the first lien, the PC amount must also be subordinate to the amount of indebtedness under the guaranteed loan that the Secretary did not purchase.

NO PHYSICAL 2ND LIEN, BUT ATTESTATION REQUIRED:

• To obtain a PC, the borrower must execute a Partial Claim Attestation Document, which is a written agreement between the borrower and servicer. Within 15 calendar days from the date VA accepts the Partial Claim TPP event, the servicer must send the Partial Claim Attestation Document to the borrower for execution, and the borrower must return the executed Partial Claim Attestation within the timeframes specified by section 22.03 b.2.

PARTIAL CLAIM TERMS:

• The servicer cannot charge the borrower interest on the PC.
• The servicer cannot require the borrower to make any monthly or periodic payments on the PC, however, borrowers may voluntarily submit payments without incurring any penalty.
• The borrower is responsible for paying the total balance of the PC to the servicer at the earliest of the following:
• When the guaranteed loan matures.
• When the guaranteed loan terminates.
• When the portion of the guaranteed loan that the Secretary did not purchase is paid off.
• When the borrower transfers title to the property by voluntary or involuntary means.
• The servicer must remit to VA all amounts the borrower pays toward the PC within the timeframes outlined in section 22.07.

PAYOFFS ON PARTIAL CLAIMS:

• Servicers must include any outstanding balance of the PC in payoff statements for the guaranteed loan.
• Servicers must not release the guaranteed loan lien unless and until the servicer remits all outstanding PC amounts to VA. If the servicer releases the lien and VA has not been fully repaid for the PC, the amount not repaid shall constitute a debt of the servicer to VA.
• Any outstanding PC balance must be included in the total indebtedness when the servicer is preparing Bidding Instructions for a foreclosure sale.
• When a guaranteed loan proceeds to foreclosure sale and funds are received from a Third Party Bid, servicers must recover as much of the outstanding PC balance as possible under applicable law.

Link to the Drafting Table:

Drafting Table - VA Home Loans

Padgett Law Group has reviewed the Draft Policies and attempted to identify all the changes contained therein. The items included below were copied/pasted and retyped, so manual error may have occurred. Further, VA may at any time update, change, remove or otherwise alter any of the resources referenced herein, and readers are encouraged to regularly review VA’s source materials for any relevant updates, changes, or alterations. Please review the Drafts in its entirety and do not rely solely on this document. The information contained herein is general in scope and is being provided as a courtesy only and does not constitute legal advice nor is it intended to be relied upon as such. The information is general in scope and not intended to be specific to any loan or property. Due to the dynamic nature of governmental and agency guidelines, and the nature of interpretation of laws, regulations, rules, and guidelines in general, PLG cannot predict, represent, or guarantee how any information provided herein will impact any particular case or group of cases. PLG is not responsible for any third-party links, documents or other materials that may be linked herein and subsequently updated, changed, or altered that may materially impact the information contained herein.