Mortgage Assistance Relief Services Rule
The Federal Trade Commission (FTC) now requires all companies that offer mortgage assistance relief services (MARS) to make three types of disclosures to short sale consumers. The rule, which went into effect March 31, 2011, also bans the collection of up-front fees. While the advance fee ban was clearly intended to protect financially distressed homeowners from mortgage relief scams that sprang up during the mortgage crisis, real estate agents are now subject to the rule. Almost overnight, thousands of real estate professionals woke up to find themselves in violation of the MARS rule. The FTC’s unwillingness to explicitly provide a Realtor exemption, as they did for attorneys, immediately subjected real estate agents to fines up to $11,000 per day unless they were in compliance with the new rule.
The National Association of Realtors (NAR) confirmed that the rule affects any real estate professional “negotiating, obtaining or arranging a short sale of a dwelling.” In response to the ruling, NAR interpreted the rule as one that applies to all real estate agents who represent clients involved in short sale transactions. According to NAR, the rule also applies if you market yourself as short sale specialist or advertise short sale experience. So, whether you handle the actual negotiations or refer them to a third party, you are subject to the MARS rule and need provide your client’s with the proper disclosures.
MARS Required Disclosures
When applied to real estate agents, MARS requires anyone working on short sales to make three types of disclosures to consumers. Depending on the type of communication, the MARS Rule contains specific requirements as to how the disclosures must be presented to consumers. In all cases, the disclosure must be clear and prominent. For printed materials, such as advertising or marketing flyers, the written disclosure must be at least 12-point type, or one-half the size of the largest font used to list the name of the firm providing the disclosures, whichever is larger. Below are examples that could be used in written materials.
General Commercial Communications Disclosures
A real estate professional that advertises MARS, not directed at a specific consumer, will need to include in all advertisements a clear and prominent disclosure with the following:
IMPORTANT NOTICE (in two point-type larger than the font size of the disclosure): (Name of company) is not associated with the government, and our service is not approved by the government or your lender. Even if you accept this offer and use our service, your lender may not agree to change your loan. If you stop paying your mortgage, you could lose your home and damage your credit rating.
Consumer-Specific Commercial Communications
The second disclosure is required in all communications that the MARS provider directs to specific “prospective” clients. These communications must be provided by the MARS provider before the provider begins mortgage assistance services on behalf of the consumer. The time when the real estate professional needs to provide this disclosure will vary, as a listing broker may not be aware that the transaction will need to be a short sale until far into the listing process. A listing broker should provide this disclosure to the client in a letter or memorandum once (s)he is aware the transaction may be a short sale, highlighting this fact in the document and prominently displaying the below disclosure statement. The disclosure must provide the following:
IMPORTANT NOTICE (in two point-type larger than the font size of the disclosure): 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. (Name of company) is not associated with the government, and our service is not approved by the government or your lender. Even if you accept this offer and use our service, your lender may not agree to change your loan. If you stop paying your mortgage, you could lose your home and damage your credit rating.
Disclosure When Providing an Offer of Mortgage Relief
The third disclosure needs to be provided in a clear and prominent manner at the time the real estate professional presents its client with the lender’s short sale approval letter. The disclosure must be provided on a separate page and state:
IMPORTANT NOTICE: Before agreeing to this service, consider the following information (in two point-type larger than the font size of the disclosure):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 disclosed previously] for our services. If you stop paying your mortgage, you could lose your home and damage your credit rating.
The real estate professional must also provide the consumer with a notice from the lender or servicer that describing all material differences between the seller’s current loan and the lender’s proposal to modify the loan, or accept a short sale. This information will likely be contained in the lender’s short sale approval letter. If, however, the approval letter lacks this language, the MARS provider’s disclosure should include information regarding the lender’s ability to hold the seller liable for any deficiency amount and encourage them to seek the advice of independent counsel.
NAR on MARS
NAR unequivocally requires all Realtors working on short sales to provide their customers with clear and prominent disclosures. Depending on the type of communication, the disclosures should contain the language from the above-referenced examples. In addition, NAR expounded upon their interpretation to point out that rule not only affects how a real estate professional markets their services, but also applies to those referring a short sale client to an independent third party. A rule that was originally intended to ban the collection of up-front fees, something a Realtor rarely does, has indirectly affected the way real estate professionals interact with their clients when negotiating, obtaining or arranging the short sale of a dwelling.
If you are a Realtor handling short sales, I would love to read your comments regarding how you have amended your marketing materials in order to comply with the MARS Rule.
About the Author: Greater Boston Short Sales, LLC (GBSS) is Massachusetts’ leading short sale negotiator. GBSS assists homeowners, Realtors and attorneys with getting their short sales closed. Contact us today if you are a homeowner facing foreclosure or a Realtor seeking assistance with a short sale transaction. GBSS is a MARS provider. Please read our disclaimer HERE.