Loan Modification Legislation & What You Need to Know NOW!

Throwing its hat into the arena in the crusade to protect distressed home owners, the FTC imposed new regulations on mortgage relief companies effective December 29, 2010, except for their advance fee ban which goes into effect January 31, 2011. Although many states, including New York, have imposed their own statutory regulations, the FTC sought to address consumer abuses in those States that had not enacted protective legislation. The FTC issued the Mortgage Assistance Relief Services (MARS) Rule (16 C.F.R. Part 322: Mortgage Assistance Relief Services; Final Rule and Statement of Basis and Purpose, FTC File No. R911003) to prevent bogus operations falsely claiming, for a fee, that they will negotiate with the consumer’s mortgage lender or servicer to obtain a loan modification, a short sale, or other relief from foreclosure. Several of these types of companies pretended to be affiliated with the government and government housing assistance programs.

In the November 2010 press release, FTC Chairman Jon Leibowitz said, “By banning providers of these services from collecting fees until the customer is satisfied with the results, this rule will protect consumers from being victimized by these scams.”

The MARS rule has a three-prong approach – it bans advance fees, requires certain disclosures and prohibits certain claims:

Advance Fees

Mortgage Relief companies may not collect any fee until they have provided the homeowner with:

a written offer from their lender or servicer that the consumer decides is acceptable; and
a written document from the lender or servicer describing the key changes to the mortgage that would result if the consumer accepts the offer.

Required Disclosures

In any advertising and in communications directed at individual consumers (such as telemarketing calls), the mortgage relief companies must make the following disclosures:

they are not associated with the government, and their services have not been approved by the government or the consumer’s lender;
the lender may not agree to change the consumer’s loan; and
if companies tell consumers to stop paying their mortgage, they must also tell them that they could lose their home and damage their credit rating.

Further, these companies must also disclose in their communications to consumers that

they can stop doing business with the company at any time,
can accept or reject any offer the company obtains from the lender or servicer, and
if they reject the offer, they don’t have to pay the company’s fee – said fee must also be disclosed

Prohibited Claims

The MARS Rule prohibits mortgage relief companies from making any false or misleading claims about their services, including claims about:

the likelihood of consumers getting the results they seek;
the company’s affiliation with government or private entities;
the consumer’s payment and other mortgage obligations;
the company’s refund and cancellation policies;
whether the company has performed the services it promised;
whether the company will provide legal representation to consumers;
the availability or cost of any alternative to for-profit mortgage assistance relief services;
the amount of money a consumer will save by using their services; or
the cost of the services.

In addition, the rule prohibits mortgage relief companies from telling homeowners to stop communicating with their lenders or their representatives. Further, these companies must also have reliable evidence to back up any claims they make about the benefits, performance, or effectiveness of the services they provide.

Lastly, it is a violation of the MARS Rule for any person to provide substantial assistance or support to a MARS Provider when that person knows or consciously avoids knowing that the MARS Provider is engaged in any act or practice that violates this Final Rule. (16 CFR Section 322.6).

Q&A:

What Exactly Are Mortgage Relief Services?

Mortgage Assistance Relief Services (MARS) are services offered or provided to a Consumer for consideration that are intended directly or indirectly to assist the Consumer with regard to:

Stopping or postponing a foreclosure sale;
Negotiating or arranging a Modification of a Dwelling Loan;
Obtaining a forbearance in the timing of payments due on a Dwelling Loan;
Negotiating or arranging any extension of the time period for curing a default or reinstating the Dwelling Loan;
Obtaining a waiver of an acceleration clause or balloon payment in a Dwelling Loan;
Negotiating or arranging a short sale, deed-in-lieu of foreclosure, title reconveyance, sale/leaseback or any other disposition of the Dwelling other than a sale to a third-party purchaser;
Offering or conducting a Forensic Loan Audit which is a legal analysis of mortgage loan documents for the purpose of finding compliance violations under federal and/or state law or regulation for the alleged purpose of helping Consumers acquire leverage over their Servicers;
Marketing of services to assist consumers in selling a Dwelling to a third party if the intent of the sale is to enable the Consumer to avoid foreclosure; and
Marketing of refinancing options by Mortgage Brokers if offered to avoid a foreclosure.

Does MARS Apply to Attorneys?

Attorneys are fully exempt if they:

Provide mortgage assistance relief as part of the practice of law;
Are licensed to practice law in the state in which the consumer for whom the attorney is providing mortgage assistance relief services resides or in which the consumer’s dwelling is located;
Comply with state laws and regulations that cover the same type of conduct the rule requires;
Deposit any funds received from the consumer prior to performing legal services in a client trust account and withdraw fees only as they are earned; and
Comply with all state laws and regulations, including licensing regulations, applicable to client trust accounts.

Does MARS Apply to Real Estate Agents?

It appears from examination of the language contained in the Supplementary Information in the Federal Register that the intent was to avoid including real estate brokers and agents handling sales of real property in the definition of MARS. However, it is certainly clear that real estate agents and brokers handling short sales, title re-conveyance or any other sale or endeavor undertaken in an effort to stop a foreclosure sale would be covered by the MARS definition.

The Supplementary Information states that the FTC does not consider the typical functions of real estate brokers, including showing homes, finding homes for Borrowers and listing homes for sale, to be MARS functions. Nonetheless, any endeavor undertaken by a real estate agent or broker in an effort to prevent a foreclosure other than these typical functions, such as negotiating with a Servicer the terms of a short sale,WILL be considered a MARS activity.

The MARS rule is something with which everyone involved in, either directly or indirectly, assisting consumers avoid foreclosure will need to understand and be in compliance with. It is broad and far reaching. The penalties for non-compliance with the FTC’s new MARS rule are $11,000 a day.

Twitter Comments

	perfectquarters RT @kasesq94: MARS Attacks! Newest Loan Modification Legislation and What You Need to http://www.nyrelawyers.com/jo5 (via @prettylink)
	Re-Tweet \| Reply \| View Tweet

	kasesq94 MARS Attacks! Newest Loan Modification Legislation and What You Need to http://www.nyrelawyers.com/jo5 (via @prettylink)
	Re-Tweet \| Reply \| View Tweet

MARS Attacks! Newest Loan Modification Legislation and What You Need to Know NOW!