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Does the New Mortgage Assistance Relief Services (MARS) Rule Affect Realtors and Short Sale Negotiators?

Rule Outlaws Advance Fees and False Claims, Requires Clear Disclosures

FTC Mortgage Assistance  Relief Services (MARS)If you are an agent/broker, involved in short sales, or are a 3rd party short sale negotiator and have not yet heard about or sought legal advice on the new FTC Mortgage Assistance Relief Services (MARS) Rule that takes effect on February 1, 2011, it would be worth your time to talk to your Broker, attorney or other legal adviser.

I am not an attorney and this is not legal advice!  You should seek your own legal advice from a legal practitioner.  This post is a summary of the rule, and interpretations of that rule by my attorney and the opinion of other attorneys I have talked to or read in various blogs.
I think it is easy when first looking at this rule as a short sale negotiator, real estate broker/agent or investor, to discharge any required compliance to the rule, particularly if one is not charging the homeowner any fees for services.

When looking at the overview on the FTC’s website, http://www.ftc.gov/opa/2010/11/mars.shtm , it is easy to surmise FTC is clearly targeting predatory Mortgage Relief Servicers, particularly those who were charging homeowners upfront fees and providing false marketing promises.

Case in point, FTC Chairman Jon Leibowitz said, “At a time when many Americans are struggling to pay their mortgages, peddlers of so-called mortgage relief services have taken hundreds of millions of dollars from hundreds of thousands of homeowners without ever delivering results,”.  Thus, FTC is issuing the Mortgage Assistance Relief Services (MARS) Rule to protect distressed homeowners from these mortgage relief scams that have sprung up during the mortgage crisis. Particularly those operations that falsely claim that, for a fee, they will negotiate with the consumer’s mortgage lender or servicer to obtain a loan modification, a short sale, or other relief from foreclosure.

However, my attorney,  Todd J Sullivan J.D, and other attorneys are taking a more conservative approach.  They contend that if you are engaged in any short sale endeavor undertaken in an effort to stop a foreclosure sale, take any fees associated in that short sale, engage in  short sale negotiations or use a 3rd party negotiator, you probably fall under the ruling should take a closer look at the rule’s requirements.

Overview of the Rule

Advance Fee Ban: The most significant consumer protection under the FTC’s new rule is the advance fee ban. Under this provision, mortgage relief companies may not collect any fees until they have provided consumers with a written offer from their lender or servicer that the consumer decides is acceptable and a written document from the lender or servicer describing the key changes to the mortgage that would result if the consumer accepts the offer.

The companies also must remind consumers of their right to reject the offer without any charge.

The Rule requires mortgage relief companies to disclose key information to consumers to protect them from being misled and to help them make better informed purchasing decisions. In their advertising and in communications directed at individual consumers (such as telemarketing calls), the companies must disclose that:

  • they are not associated with the government, and their services have not been approved by the government or the consumer’s lender;
  • the lender may not agree to change the consumer’s loan; and
  • if companies tell consumers to stop paying their mortgage, they must also tell them that they could lose their home and damage their credit rating.

Companies also must explain in their communications to consumers that they can stop doing business with the company at any time, can accept or reject any offer the company obtains from the lender or servicer, and, if they reject the offer, they don’t have to pay the company’s fee. The companies also must disclose the amount of the fee.

Prohibited Claims: The MARS Rule prohibits mortgage relief companies from making any false or misleading claims about their services, including claims about:

  • the likelihood of consumers getting the results they seek;
  • the company’s affiliation with government or private entities;
  • the consumer’s payment and other mortgage obligations;
  • the company’s refund and cancellation policies;
  • whether the company has performed the services it promised;
  • whether the company will provide legal representation to consumers;
  • the availability or cost of any alternative to for-profit mortgage assistance relief services;
  • the amount of money a consumer will save by using their services; or
  • the cost of the services.

In addition, the rule bars mortgage relief companies from telling consumers to stop communicating with their lenders or servicers. Companies also must have reliable evidence to back up any claims they make about the benefits, performance, or effectiveness of the services they provide.

Compliance


FTC Mortgage Assistance Relief Services (MARS)Todd J Sullivan J.D. on January 13, 2011 stated new MARS rule does not apply to real estate brokers who provide only real estate brokerage services to their clients (e.g. listing, showing, negotiating the transaction with the buyer) and who do not attempt to negotiate or otherwise provide services related to obtaining lender approval of a short sale.

Although the intent of the rule is to avoid including real estate brokers and agents handling sales of real property in the definition of MARS, from the language contained in the Supplementary Information in the Federal Register, it is clear that real estate agents and brokers handling short sales, title re-conveyance or any other sale or endeavor undertaken in an effort to stop a foreclosure sale would be covered by the MARS definition:

Under FTC Section 322.2 DEFINITIONS (i) ”Mortgage Assistance Relief Service” means any service, plan, or program, offered or provided to the consumer in exchange for consideration that is represented, expressly or by implication, to assist or attempt to assist the consumer with any of the following: and followed by subsection (6) Negotiating, obtaining or arranging:

(i)    A short sale of a dwelling,
(ii)   A deed-in-lieu of foreclosure, or
(iii)  Any other disposition of a dwelling other than a sale to a third party who is not the dwelling loan holder.

If so, that Realtor is a MARS provider and must comply with all the statutory requirements under the FTC Final Rule.

Remember, while typical real estate brokerage services are not classified as a provider under the new MARS rule, you cannot use the real estate brokerage services as a shield to compliance with the new rule if you are legitimately engaged as a Short Sale Negotiator.

Marketing and Representation Disclosures

Short Sale Negotiators must now provide significant disclosures in any and all commercial communications issued to homeowners:

(1) “(Name of company) is not associated with the government, and our service is not approved by the government or your lender.”

(2) “Even if you accept this offer and use our service, your lender may not agree to change your loan.”

In Addition, the negotiator must refrain from:

  • Representing in connection with the advertising, marketing, promotion, offering for sale, sale, or performance of the short sale negotiation service, that a consumer cannot or should NOT contact or communicate with his or her lender or servicer;
  • Making a representation about the benefits, performance, or efficacy of any short sale negotiations service unless, at the time such representation is made, the provider possesses and relies upon competent and reliable evidence that substantiates that the representation is true.

Fees Assessed to the Seller:

When making any commercial communications directed at a specific consumer, the disclosures must also include the following:

“You may stop doing business with us at any time. You may accept or reject the offer of mortgage assistance we obtain from your lender [or servicer]. If you reject the offer, you do not have to pay us. If you accept the offer, you will have to pay us (insert amount or method for calculating the amount) for our services.”

For the purposes of this disclosure, the amount the consumer has to pay consists of the total amount the consumer must pay to purchase, receive and use all of the mortgage assistance relief services that are the subject of the sales offer, including, but not limited to; all fees and charges.

  • May not request or receive payment of any upfront fees or other consideration until the consumer has executed a written agreement with their lender or servicer incorporating the offer of mortgage assistance relief the Short Sale Negotiator obtained;
  • Must disclose, at the time the Short Sale Negotiator furnishes the consumer with the proposed written agreement with their lender or servicer (e.g. the short sale approval letter), the following information:

“This is an offer of mortgage assistance we obtained from your lender [or servicer]. You may accept or reject the offer. If you reject the offer, you do not have to pay us. If you accept the offer, you will have to pay us [same amount as previously disclosed] for our services.” “

Many Short Sale Negotiators attempt to get paid by the listing broker. Even if that is the case, a disclosure of that fee must be made.

Conclusion

While the National Association of Realtors has yet to come out with its position on this ruling, the message from the attorney’s positions are very clear:

  • Provide Full Disclosure and Transparency;
  • Avoid any exaggerate marketing promises;
  • Avoid any fees from the homeowner.

As a 3rd party negotiator and a realty/investment entity providing foreclosure relief services, Trademark is taking a conservative approach to this rule.  This is to ensure we are in compliance as well as for the protection of our client base.  While we have been disclosing similar language to the parties involved in our transactions for years, we are updating the disclosure language in our marketing and communication to the homeowner.  In addition, we do not, nor do we intend to charge any fees to the homeowner.

For additional questions or followup, please contact jim@trademarklossmitigation.com

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