Training for Short Sales & Mortgage Loss Mitigation to Stop Foreclosure

MARS, God of War Declares a Truce on Short Sales

April 1, 2012 by  
Filed under Short Sale How To

MARS declared war on Short Sale Realtors, then called a truce.

The Mortgage Assistance Relief Services (MARS) rules by the Federal Trade Commission (FTC) are designed to deal with the scum who will take advantage of people in danger of losing their home. There are people so heartless that they will promise to save desperate homeowners, take their last little bit of cash, then do nothing to help them. The MARS rule requires certain disclosures and prohibits certain things, like charging up front fees and telling borrowers to stop communicating with their lender. In general, I support what it does. However, it messes up Short Sales.

The rules require disclosures that were hard to translate into the Short Sale situation, so they were confusing to potential sellers. The FTC Compliance Guide found at http://business.ftc.gov/documents/bus76-mortgage-assistance-relief-services-rule states that Realtors need do the following with borrowers (“them”) :

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

  • the total cost,
  • that they can stop using your services at any time,
  • that you’re not associated with the government or their lender, and
  • that their lender may not agree to change the terms of their mortgage.
  • If you advise someone not to pay his or her mortgage, you must clearly and prominently disclose the negative consequences that could result. You must warn customers that failure to pay could result in the loss of their home or damage to their credit rating.
  • 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.
  • There was an abundance of fear of prosecution by the real estate community, so the FTC decided it would not enforce the provisions of this rule against real estate agents who did short sales. In July 2011, the FTC said “As more and more American homeowners seek short sales, it is especially important that the Rule not inadvertently discourage real estate professionals from helping consumers with these types of transactions.” For the whole FTC release, go to http://www.ftc.gov/opa/2011/07/mars.shtm

    However, this is just a stay in enforcement. What happens if there is a change of heart by the FTC, something that frequently occurs if there is a change in the administration. The FTC did not repeal the rule. It did not change the portion of the rule defining its application to real estate agents. It just said it would not prosecute real estate agents for certain violations of the rule…. for now. They can reverse that stance at any time.

    What should real estate agents do? I think the safest thing is to follow the requirements of MARS. Give the disclosures when you meet with a seller to discuss listing their home. Don’t charge up front fees. If you must charge a seller, do it after performing the service for which you are charging. If the Short Sale does not close, you do not collect the commission. The FTC rule also bans misrepresentations and that ban is not covered by the stay in enforcement. However, real estate agents have many, many regulations that ban misrepresentation, so you already know to avoid that violation.

    Is it absolutely necessary to follow the requirements of MARS? No. You will probably be fine if you believe the FTC and ignore the law while their stay of enforcement is in effect. However, the more cautious way to run your real estate practice is to follow those rules so that if there is a change in the enforcement policies, you are not sitting there with a bunch of files that do not meet the MARS requirements.

    Some crooks find a way to prey on desperate homeowners, so those of us who are honestly trying to save those homeowners have to work harder to abide by more rules. You have to enjoy the irony.

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