New “MARS” Disclosure for people doing short sales!

THIS CHANGE COULD COST YOU $10,000 SO PLEASE READ THIS ARTICLE:

 The Federal Trade Commission (FTC) as authorized and directed by the 2009 Omnibus Appropriations Act released the Mortgage Assistance Relief Services (MARS) rule on December 1st 2010 and it went into effect beginning December 29, 2010 (except the advance-fee ban provisions which became effective January 31, 2011).

As a side note, this proposed rule was published in the Federal Register on June 1, 2009 and March 9, 2010.  How the heck we are just hearing about this after it has been congressionally mandated, its advanced notice published, was opened to public comment, finalized, the final version published, and the waiting period for its effective date elapsed speaks volumes about how we as investors participate in our own industry.

The purpose of MARS rule is to protect struggling homeowners who are facing foreclosure from unscrupulous service providers who take their money and provide little or no services and in some cases actually harm the homeowner.

If you market to homeowners to help them “avoid foreclosure” or other similar services such as loan modifications, this new rule will apply to you.

If you are an agent that works short sales, markets to consumers for short sales or negotiates short sales, or are a mortgage modification company, this new rule will apply to you.

 

This new rule outlaws advanced fees from sellers, regulates claims made in marketing and requires specific disclosures.

This new federal rule applies to all types of mortgage relief assistance services, including anything having to do with short sales, loan modifications and/or deed-in-lieu settlements. It’s a rule you don’t want to break: Penalties for non-compliance with the Federal Trade Commission’s new MARS rule are up to $10,000 PER VIOLATION.

So, what should you do?  SEEK LEGAL ADVICE.  Even if after reading the entire MARS rule you think you are in compliance with it, you should have a qualified real estate attorney/firm look over ALL of your correspondence, marketing and forms.  Make sure you comply.  NO this new law won’t shut us down, so please don’t get scared, just change up your marketing, don’t charge an upfront fee, and for goodness sake don’t make a claim that you can’t back up.

 

Here is an outline of the major changes taken from:

http://www.ftc.gov/opa/2011/02/pdf/110210mars_business.pdf

 

1. It’s Illegal to Charge Upfront Fees

• As a realtor, investor, short sale negotiation company, or mortgage modification company you can no longer charge an upfront fee to the homeowner.
• You cannot try to rename the fee and charge for example a “marketing fee”, “Co-list fee”, or “negotiation fee” in advance for the short sale.
•  You cannot charge an upfront fee from a customer until you’ve met the 3 requirements:

1. You get an offer of mortgage relief from your customer’s lender or servicer.  You must have persuaded your customer’s lender or servicer to reduce, modify, or otherwise change the terms of the customer’s mortgage loan;
2. You give your customer the written offer.  You must provide your customer with a written agreement from the lender or servicer to reduce, modify, or otherwise change the terms of the customers mortgage loan; and
3. Your customer accepts the written offer.  The customer’s acceptance must be in the form of an executed written agreement with the lender or servicer that incorporates the changes to the terms of his or her mortgage loan.
4. You must clearly and prominently disclose certain information before you sign people up for your services.

• You must tell them upfront key information about your services, including:

1. the total cost,
2. that they can stop using your services at any time,
3. that you’re not associated with the government or their lender, and
4. that their lender may not agree to change the terms of their mortgage.
5. If you advise someone not to pay his or her mortgage, you must clearly and prominently disclose the negative consequences that could result.

 

1. You must warn customers that failure to pay could result in the loss of their home or damage to their credit rating.
2. Don’t advise customers to stop communicating with their lender or servicer.
3. Under the Rule, it’s illegal to tell people they shouldn’t communicate with their lender or servicer.
4. You must disclose key information to your customer if you forward an offer of mortgage relief from a lender or servicer.

• You must give your customer a written notice from the lender or servicer describing all material differences between the terms of the offer and the customer’s current loan. You also have to tell your customer that if the lender or servicer’s offer isn’t acceptable to them, they don’t have to pay your fee.

1. Don’t misrepresent your services.

• Under the Rule, it’s illegal to make claims that are false, misleading, or unsubstantiated.

i.      the likelihood of negotiating, getting, or arranging a specific form of mortgage relief;

ii.      how long it will take to get the advertised mortgage relief;

iii.      an affiliation with the government, public programs, or lenders or servicers;

iv.      the terms and conditions of homeowners’ mortgages, including how much they currently have to pay;

v.      your refund and cancellation policies;

vi.      whether homeowners will be getting legal services;

vii.      the benefits and costs of using alternatives to for-profit MARS providers;

viii.      the amount homeowners may save if they use your service;

ix.      the total cost of your service; and

x.      the terms, conditions, or limitations of a lender or servicer’s offer of mortgage relief, including how much time the       homeowner has to accept the offer.

1. Disclosures you must make in ads meant for a general audience:
   1. The Rule requires certain disclosures in what it calls “general commercial communications” – that is, advertising meant for a general audience, like ads on TV, radio, or the Internet. In those ads, you must clearly and prominently disclose two key facts, in these words:

i.       “[Name of your company] is not associated with the government, and our service is not approved by the government or your lender;” and

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

1. The two disclosures must be presented together. The Rule has specific requirements for presenting them.
2. Disclosures you must make in communications with prospective customers
   1. The Rule requires additional disclosures in any “consumer specific commercial communication” – that is, a letter, phone call, email, text, or the like, directed at a specific person you’re soliciting for your service. In every communication you have with prospective customers, the Rule requires that you clearly and prominently disclose three key facts, in these words:

i.      “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.”

ii.      “[Name of your company] is not associated with the government, and our service is not approved by the government or your lender;” and

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

1. The three disclosures must be presented together. The Rule has specific requirements for presenting these disclosures to prospective customers.

 

For more information about this new law please refer to the following links:

 

http://www.ftc.gov/opa/2011/02/pdf/110210mars_business.pdf

http://www.ftc.gov/os/2010/11/R911003mars.pdf

http://www.ftc.gov/opa/2010/11/mars.shtm