Friday, May 13, 2011

New FTC Rule Impacts Realtors' Short Sale Business

The Mortgage Assistance Relief Services (MARS) rule, which applies to residential real estate transactions, took effect January 31.

As of January 31, 2011, companies that offer to help homeowners get their loans modified or sell them other types of mortgage assistance relief services are no longer allowed to charge up-front fees. Under the rule, a mortgage assistance relief company may not collect a fee until the consumer has signed a written agreement with the lender that includes the relief obtained by the company. When the company presents the consumer with that relief, it must inform the consumer, in writing, that the consumer can reject the offer without obligation and, if the consumer accepts, the total fee due. Before the consumer agrees to accept the mortgage relief, the company must also provide a written notice from the lender or servicer showing how the relief will change the terms of the consumer’s loan (including any limitations on a trial loan modification).

Attorney exemption

Attorneys are generally exempt from the rule if they provide mortgage assistance relief services as part of the practice of law, are licensed in the state where the consumer or dwelling is located, and comply with state laws and regulations governing attorney conduct related to the rule. To be exempt from the advance fee ban, attorneys must also place any advance fees they collect in a client trust account and abide by state laws and regulations covering such accounts. Flat Fee Cases are not advance fees.

Realtors must comply with the rule by not taking upfront fees and using specific disclosure language. The rule pertains to such practices as advertising short sale negotiation services or other short sale expertise, communicating with a consumer about a possible short sale before the listing agreement is executed, negotiating a short sale on behalf of a consumer, or arranging a short sale negotiation for a consumer.

A real estate professional now needs to include a clear and prominent disclosure in all commercial messages that advertise short sale services. In addition, second and third disclosures are required by real estate professionals before they begin mortgage assistance services on their clients’ behalf and at the time they present their client with the lender’s short sale approval letter.