As the number of homeowners experiencing financial difficulties increases due to the prolonged recession, many look for alternative options to foreclosure including selling their homes. In some cases, the sale is for less than what is owed on the mortgage, normally called a “short sale.” To protect distressed homeowners from mortgage relief scams that have sprung up in recent years, the Federal Trade Commission (FTC) published the Mortgage Assistance Relief Services (MARS) final rule on Dec. 1, 2010. The rule is now in effect.
The MARS rule is primarily directed at companies that offer loan modification services to consumers for a fee not related to the commission for the sale of a home. When a company is marketing these types of services to consumers, the rule:
- Requires that the mortgage assistance relief services provider make certain disclosures to consumers
- Bars advance fees paid to a mortgage assistance relief services provider
- Prohibits certain representations
- Imposes record keeping requirements, mandating that loan modification service providers retain all mortgage assistance relief services advertisements, sales records for covered transactions, customer communications, and customer contracts for two years
- Stipulates that mortgage assistance relief services providers can only receive payment if the consumer’s loan is modified by the lender
What This Means for REALTORS®
While the intent of the MARS rule is to protect distressed homeowners from mortgage relief scams, it is written so broadly that it also required real estate brokers and agents acting in their licensed capacity to comply when they negotiate with the lender on the terms of a short sale.
NAR and the FTC discussed the difficulty real estate brokers and agents have in complying with the literal requirements of the MARS rule since it was not drafted with a real estate sales transaction in mind. On July 15, 2011, The Federal Trade Commission (FTC) announced that it will forbear from enforcing most provisions of its Mortgage Assistance Relief Services (MARS) Rule against real estate professionals who assist financially distressed consumers in obtaining short sales from their lenders or servicers.
Responsibility for this regulation passed to the Consumer Financial Protection Bureau (CFPB) in July 2011. CFPB pledged to honor the forbearance previously announced by the FTC.