New FTC Rule Aims to Protect Homeowners from Mortgage Relief Scams

Strategic Insights -

A new rule from the Federal Trade Commission (FTC) aimed at protecting homeowners from mortgage relief scams may have significant implications for real estate professionals who represent clients involved in short sale transactions. The FTC's Mortgage Assistance Relief Services (MARS) rule, which took effect on January 31, 2011, prohibits upfront fees for renegotiating mortgage terms and requires certain disclosures to be made to consumers when a short sale is negotiated with a lender or when advertising short sales experience.

Key Takeaways:

  • The MARS rule is primarily directed at companies that offer loan modification services to consumers, but it also affects real estate professionals who represent clients involved in short sales transactions.
  • Real estate professionals must comply with the rule by not taking any upfront fees and using specific disclosure language when advertising short sales services.
  • There are three types of disclosures required by real estate professionals under the MARS rule: before beginning mortgage assistance services, at the time of presenting the client with the lender's short sale approval letter, and in all commercial messages advertising short sale services.
  • The National Association of Realtors (NAR) is working with the FTC to clarify several aspects of the rule in relation to real estate professionals when they perform traditional real estate functions in a short sale transaction.
  • NAR is discussing with the FTC language in the second and third disclosures and other requirements found in the MARS rule.
  • The FTC is considering options to help make the rule more applicable to real estate brokerages.

Statistics:

  • 1.1 million members are represented by the National Association of Realtors (NAR) (www.realtor.org).
  • The MARS rule took effect on January 31, 2011 (Marketwire via COMTEX).
  • The MARS rule prohibits upfront fees for renegotiating mortgage terms (National Association of Realtors).

Sources:

National Association of Realtors, "New FTC Rule to Protect Homeowners in Short Sales," www.realtor.org.

Marketwire, "National Association of Realtors Holds 2011 Midyear Legislative Meetings & Trade Expo," (via COMTEX, May 11, 2011).

National Association of Realtors, National Association of Realtors, "The Voice for Real Estate," www.realtor.org (copyright 2011 Marketwire, Inc.).