Last updated: March 2026
Your bank has options it won’t always volunteer. Mortgage servicers are large institutions with departments that handle thousands of delinquent accounts, and they rely on homeowners not knowing to ask for specific programs. If you’re behind on your mortgage or facing foreclosure, here are 5 options that exist and are worth fighting for, even if your lender hasn’t mentioned them.
1. FHA Partial Claim (FHA Loans Only)
If your loan is FHA-insured, a Partial Claim is one of the most powerful tools available, and one of the least talked-about. It’s a zero-interest loan from HUD that pays your lender the amount you’re behind, bringing your mortgage current immediately. You don’t repay the Partial Claim until you sell the home, refinance, or pay off your mortgage.
How it works:
- You must be 1-12 months behind on an FHA-insured mortgage
- You must be able to resume your normal monthly payments going forward
- HUD issues a promissory note for the missed amount, no interest, due when the home is sold or loan paid off
- Your first mortgage is immediately reinstated
How to ask for it: Call your servicer’s loss mitigation department and specifically say “I want to apply for an FHA Partial Claim.” You can also request it through a HUD-approved housing counselor (800-569-4287) who can advocate on your behalf.
2. Loan Modification With Principal Reduction
Most people know that loan modifications can lower your interest rate or extend your loan term. Fewer people know that in some circumstances, lenders and servicers can also reduce your principal balance, the actual amount you owe. This is not common, but it’s more available than banks let on, particularly for loans with investor guidelines that allow it.
When to push for principal reduction:
- You are significantly underwater (owe considerably more than the home is worth)
- Your loan is owned by an investor who allows principal reduction (some GSE and private-label securities do)
- A standard rate/term modification still leaves your payment unaffordable
- You have a documented, verifiable hardship with supporting evidence
How to push for it: Ask your servicer directly whether your loan investor allows principal reduction as part of a loan modification. Request an escalation to their loss mitigation supervisor. A HUD-approved counselor can help you navigate this request.
3. The Forbearance-to-Modification Pipeline
Forbearance and loan modification are often presented as separate options. What your lender may not tell you is that a forbearance is often designed as the front door to a permanent modification. If you get a forbearance and successfully make reduced payments for 3-4 months, you may be automatically reviewed for a permanent loan modification without starting over.
How to use this to your advantage:
- When requesting forbearance, explicitly ask: “What happens at the end of the forbearance period? Will I be reviewed for a permanent modification?”
- Make all reduced payments on time during forbearance, this is your track record for the modification review
- Document your hardship thoroughly before and during forbearance
- At the end of the forbearance period, immediately request conversion to a permanent loan modification rather than accepting a balloon repayment of missed amounts
Why banks don’t always lead with this: Servicers get paid to collect. They may prefer to keep you in temporary forbearance than commit to a permanent modification that reduces their income. Be proactive and ask explicitly.
4. Selling With Equity vs. Short Sale, Know Your Numbers First
When homeowners fall behind, many assume they’re automatically in short-sale territory. This is often not true. If your home has appreciated, which many Arizona homes have over the past several years, you may have significant equity that you could walk away with by selling before foreclosure rather than losing everything to the auction.
The numbers that matter:
- Current market value: What similar homes in your neighborhood have sold for recently
- Outstanding mortgage balance: What you owe (get a payoff quote from your lender)
- Arrears: What you’re behind on (add this to the payoff if you want the exact number)
- Net equity: Market value minus payoff and arrears
If your net equity is positive, a sale before foreclosure can put real money in your pocket and stop the process entirely. Even with selling costs, you may come out far ahead of going through the foreclosure. A cash buyer who closes quickly can make this happen even late in the foreclosure timeline.
If you’re underwater, a short sale may still be better than foreclosure, less credit damage, more control over the timeline, and in some cases relocation assistance from the lender.
5. Deed in Lieu With Relocation Assistance
A deed in lieu of foreclosure means you voluntarily transfer ownership of your home to the lender in exchange for being released from your mortgage obligation. What many homeowners don’t know: some lenders will pay you relocation assistance, a cash payment, sometimes $3,000-$10,000 or more, in exchange for transferring the property in good condition and vacating by an agreed date.
When deed in lieu makes sense:
- You have little or no equity
- You’ve tried other options (modification, forbearance) without success
- You want a clean exit with a defined timeline instead of an eviction
- You want less credit damage than a full foreclosure (deed in lieu is typically less damaging than foreclosure)
How to negotiate relocation assistance: When you contact your servicer’s loss mitigation department to discuss deed in lieu, specifically ask: “Do you offer a cash-for-keys or relocation assistance program?” Don’t accept the first number they offer, it’s often negotiable. Document the property’s condition to support your request.
The one thing all 5 of these have in common
You have to ask.
Banks and mortgage servicers do not proactively walk you through every option available. They are large organizations optimizing for their own outcomes, not yours. The programs above exist and are available to qualifying homeowners, but you will not hear about them unless you call, ask specifically, and push past the first “no” or “you don’t qualify.”
This is why HUD-approved housing counselors are so valuable. They know what to ask for, how to frame your request, and how to escalate if the first answer isn’t helpful. Their service is free. Call 800-569-4287 to find one near you.
Frequently asked questions
How do I know if my loan is FHA?
Check your original loan documents or call your servicer and ask. You can also look up your address at the HUD website to see if an FHA case number is associated with your property.
My lender says I don’t qualify for a modification. Is that final?
Not necessarily. You can request a review of the denial, ask for an escalation to a supervisor, or request a review under different modification programs. A HUD-approved counselor can often get you a second look.
How long does a deed in lieu take?
The process typically takes 60-90 days from application to completion. Your lender will want to verify there are no other liens on the property, review your hardship documentation, and agree on the terms.
Does a short sale hurt my credit less than foreclosure?
Generally yes. A short sale is typically reported as “settled for less than full amount” and causes less credit damage than a completed foreclosure. Both impact your ability to get a new mortgage, but recovery from a short sale is typically faster.
Not sure which options apply to your situation? We offer free calls where we walk through every option available to you, including things your bank won’t tell you about. We only recommend selling to us if it’s genuinely the best path for your family. Talk to us today.