The Federal Trade Commission recently imposed a new rule on those companies providing mortgage relief to homeowners through short sales, loan modifications, and other mortgage relief options. The FTC issued the Mortgage Assistance Relief Services (MARS), Rule 16 C.F.R. 322, to prevent consumer abuses by sham companies claiming that, for a fee, they will negotiate with the homeowners' lender to obtain relief from foreclosure . The MARS rule became fully effective on January 31, 2011.
What are Mortgage Assistance Relief Services (MARS)?
MARS are services offered to homeowners intending to assist them in: stopping or postponing a trustee's sale, negotiating a short sale, negotiating a deed in lieu of foreclosure, exploring refinancing options to avoid a foreclosure, negotiating a modification, negotiating an extension of time for mortgage reinstatement, obtaining waivers on acceleration clauses, and other mortgage relief options. Those who perform these services are "MARS providers."
Limitations Under MARS.
The MARS rule identifies three fields of limitations: 1) it bans advanced fees; 2) it requires specific disclosures to homeowners; and 3) it prohibits certain representations to homeowners.
Under MARS, when can a fee be paid?
A MARS provider cannot collect any fee until it has provided the homeowner with: 1) a written offer from the lender that is acceptable to the homeowner, and 2) in writing, the key changes to the loan from the lender that would apply if the changes are agreed to by the homeowner.
Under MARS, what must be disclosed?
A MARS provider must disclose, among other things: 1) that it is not associated with the government, 2) that the lender may not agree to modify the homeowner's loan, and 3) if it is going to advise the homeowner to stop paying the mortgage, then it must also advise it that the home could be lost at foreclosure and its credit may be damaged.
Under MARS, what representations are prohibited?
The MARS rule prohibits MARS providers from falsely representing, among other things: 1) the likelihood of getting mortgage relief, 2) the anticipated new negotiated payment amount, 3) the amount of money the homeowner will save by using the company, 4) any affiliation with the government or private entities, 5) whether the company will provide legal representation to the homeowners, 6) the costs of the services, or 7) to stop communicating with their lenders.
Typical real estate brokerage services are not classified as MARS provider services. So a broker can list, market, show properties, and negotiate a transaction outside of the MARS rule. However, if a real estate broker is negotiating with the lender on behalf the homeowner a short sale, loan modification, deed in lieu of foreclosure, or any other mortgage assistance, then the MARS rule applies.
Moreover, under MARS, a violation can arise for a real estate broker if that broker refers a client to a MARS provider, and if the broker knows or consciously avoids knowing that the provider is not in compliance with the MARS rule.
Does the MARS Legislation apply to Lawyers?
Lawyers are fully exempt from the MARS ru le if: they provide mortgage assistance as part of their practice, are licensed in the state in where the property is located, and deposit any funds received from the homeowner into their trust account to be withdrawn when earned.
Is there a MARS Penalty?
Anyone involved with assisting homeowners negotiate with their lenders for distressed properties should become familiar with the MARS rule. Those found to be in noncompliance of the MARS rule could face a civil penalty of $11,000.00 a day and criminal charges. Clearly, compliance is key.
Schern Richardson Finter Decker is happy to help you navigate through this MARS storm.