Did You Skip Mortgage Payments During COVID? The Hidden Balance That Could Affect Selling Your Home!

Remember when homeowners were offered mortgage payment relief during the COVID-19 pandemic?

Millions of homeowners were able to temporarily pause or reduce their mortgage payments through forbearance programs.

Many were told their missed payments could be "put at the end of the loan," allowing them to resume making their regular monthly payments without immediately catching up.

For many families, that relief was a lifeline.

But here's something homeowners may not realize:

Just because your mortgage payments are current doesn't necessarily mean your regular mortgage statement reflects everything you'll owe when you sell your home.

Depending on your mortgage type and the assistance you received, you could have a deferred balance, a modified mortgage, or even a separate second lien that must be addressed when you sell or refinance.

And this isn't just an FHA mortgage issue!

1. What Happened to Those Missed Mortgage Payments?

During COVID, the CARES Act provided forbearance protections for eligible homeowners with federally backed mortgages.

But forbearance wasn't the same as forgiveness.

In most cases, missed mortgage payments still had to be repaid eventually.

Depending on the loan program and the assistance option, those payments may have been:

• Deferred until the mortgage is paid off, refinanced, or reaches maturity.

• Placed into a separate, interest-free subordinate loan.

• Added to the existing mortgage balance through a loan modification.

• Repaid through another arrangement with the mortgage servicer.

The important thing to understand is that not all mortgage relief programs worked the same way.

2. FHA Loans: HUD Partial Claims

If you had an FHA mortgage and received payment assistance, you may have a HUD partial claim.

A partial claim allows eligible missed mortgage payments or other qualifying amounts to be placed into a separate, interest-free subordinate lien against your property.

That means:

• You generally don't make monthly payments on the partial claim.

• The partial claim does not accrue interest.

• The balance remains owed even when your regular mortgage payments are current.

• Repayment is generally required when the property is sold, the first mortgage is paid off, or certain other repayment events occur.

Think of it as a second mortgage that sits quietly in the background.

Because you aren't making monthly payments on it, you may forget that balance exists.

And that could be a big surprise when you're ready to sell!

Not every FHA borrower who received forbearance has a partial claim. Some received loan modifications or other assistance instead.

3. Conventional Loans: Fannie Mae and Freddie Mac Payment Deferrals

This issue isn't limited to government-insured mortgages.

Many homeowners with conventional loans also received payment assistance during COVID.

Fannie Mae and Freddie Mac offered payment deferral options that allowed eligible borrowers to resume their regular mortgage payments while postponing repayment of missed amounts.

Unlike an FHA partial claim, a conventional payment deferral generally does not create a separate second mortgage lien.

Instead, the deferred amount becomes a non-interest-bearing balance associated with the existing mortgage.

That balance generally becomes due when the mortgage reaches maturity, the home is sold, or the loan is refinanced or otherwise paid off.

So even though you may not have a separate recorded second mortgage, you could still have an additional deferred amount to repay.

That's why it's important to request a complete payoff statement rather than relying solely on the principal balance displayed on your monthly statement.

4. VA Loans: Veterans May Also Have Separate Liens

Veterans who received COVID-related mortgage assistance may also have repayment obligations that aren't obvious from their regular mortgage statement.

During the pandemic, the Department of Veterans Affairs offered certain programs that allowed eligible borrowers to defer or restructure missed mortgage payments.

Some of those programs, including the COVID-19 Veterans Assistance Partial Claim Payment program and COVID-19 Refund Modification, involved VA purchasing part of the mortgage debt and establishing a second lien.

Depending on the specific assistance program, the amount may become due when the property is sold, the mortgage is refinanced, or the loan is paid off.

Not every VA borrower who received forbearance has a second lien, but homeowners who used these programs should verify their repayment obligations before selling or refinancing.

5. USDA Loans: Mortgage Recovery Advances

USDA homeowners may also have received assistance through mortgage recovery advances or loan modifications.

Certain USDA mortgage recovery advances can create separate subordinate liens against the property.

These balances may need to be repaid when the home is sold or the mortgage is paid off, depending on the program terms.

If you have a USDA mortgage and previously received payment assistance, it's important to ask your servicer whether any deferred balance or mortgage recovery advance remains outstanding.

6. How Could This Affect Selling Your Home?

Let's look at a simple example.

Imagine you're getting ready to sell your home.

Your home is worth approximately $350,000, and your regular mortgage statement shows a principal balance of $250,000.

You might assume you have $100,000 in equity before selling expenses.

But what if you also owe $20,000 in deferred payments or a separate subordinate lien?

That's $20,000 less than you may have expected!

And that calculation doesn't include real estate commissions, closing costs, property tax prorations, or other selling expenses.

For a homeowner planning to use those proceeds toward their next home, that difference could be significant.

This example assumes the $20,000 is owed in addition to the $250,000 balance shown and is not already included in that figure.

7. How Could This Affect Buying Your Next Home?

Here's where this becomes especially important.

Let's say you're selling your current home and planning to use the equity for a down payment on another property.

You've already started looking at homes, calculated your estimated proceeds, and decided how much you want to put down.

But if you discover an outstanding deferred balance or second lien, you may have less cash available than expected.

That could affect:

• Your available down payment.

• Your new loan amount.

• Your estimated monthly payment.

• Your available funds for closing costs.

• Your overall homebuying budget.

This is why I encourage homeowners to review their complete mortgage payoff obligations before making major decisions about their next purchase.

Knowing your home's value is important. Knowing exactly what you owe is just as important!

8. What If You Want to Refinance?

Deferred mortgage balances and subordinate liens can also affect refinancing.

Depending on the loan program and refinance type, an outstanding balance may need to be paid off or may qualify for an approved subordination arrangement.

For example, certain FHA Streamline Refinances may allow an existing HUD partial claim to remain in place through subordination.

Other transactions may require the deferred amount or lien to be addressed as part of the new loan.

These requirements vary, so it's important to identify any existing deferred balance before beginning the refinance process.

9. How Do You Find Out If You Have a Deferred Balance or Second Lien?

If you received mortgage payment assistance during COVID—or at any other time—here are some steps you can take.

Step 1: Contact your mortgage servicer.

Ask whether you have any outstanding deferred principal, partial claims, mortgage recovery advances, or subordinate liens associated with your loan.

Step 2: Review your mortgage assistance paperwork.

Look for terms such as:

• Partial Claim

• Payment Deferral

• Subordinate Mortgage

• Promissory Note

• Mortgage Recovery Advance

• Loan Modification

• Refund Modification

Step 3: Request a complete payoff statement.

Make sure the payoff information includes any deferred amounts and identifies separate liens that require additional payoff requests.

If you have an FHA partial claim, HUD provides a process for requesting partial claim payoff information.

Step 4: Check before you list your home.

If you're planning to sell, ask your closing attorney or title company to identify outstanding liens and obtain the necessary payoff statements early.

Step 5: Review your numbers before purchasing another home.

If you're depending on proceeds from your current home to purchase another property, verify your expected net proceeds before making financial commitments.

10. The Bottom Line: Don't Let a Forgotten Balance Surprise You!

Mortgage relief programs helped many families remain in their homes during difficult financial times.

But years later, some homeowners may not remember exactly how their missed payments were handled.

Whether you have an FHA, conventional, VA, or USDA mortgage, it's worth checking if you received forbearance or other mortgage payment assistance.

A deferred balance or subordinate lien doesn't necessarily mean anything is wrong with your mortgage.

It simply means there may be an additional repayment obligation to consider.

Before you sell, refinance, or purchase another home, make sure you understand your complete mortgage payoff—not just the balance on your monthly statement.

A little preparation today could prevent a costly surprise at closing.

About the Author

Lindsay Frangie, known as Lindsay The Lender, is a Branch Partner with ALCOVA Mortgage and has more than 24 years of mortgage lending experience. She helps homebuyers and homeowners understand their financing options and make informed real estate decisions.

Lindsay Frangie | NMLS #6048
ALCOVA Mortgage, LLC | Company NMLS #40508
Equal Housing Lender

This article is for educational purposes only. Mortgage assistance, payoff, lien, and subordination requirements vary by loan program and individual circumstances. Contact your mortgage servicer for information about your specific loan.