The Mortgage Assistance Relief Services (MARS) Rules- A Primer
The Federal Trade Commission (“FTC”) has issued a rule that restrict services offered to help homeowners avoid foreclosure. The FTC has issued the Mortgage Assistance Relief Services (MARS) Rule to protect distressed homeowners from mortgage relief scams that have sprung up during the mortgage crisis. Although there are plenty of bogus claims that, for a fee, a company will negotiate with the homeowner’s mortgage lender to obtain a loan modification, a short sale, or other relief from foreclosure, the MARS Rule is so broadly written that it will impact 1,000’s of legitimate service providers.
The MARS Rule prohibits a provider of mortgage foreclosure rescue and loan modification services from collecting fees until after the homeowner has a written offer from the lender and the homeowner accepts the offer. The offer from the lender must describe the key changes to the mortgage that would result if the homeowner accepts the offer. The service provider must remind the homeowner that the homeowner may the offer. In fact, the disclosure obligations imposed on service providers are numerous and detailed.
For example, in all advertising and communications with an individual homeowner, the service provider must disclose:
- The service provider is not associated with the government, and its services have not been approved by the government or the homeowner’s lender;
- The lender may not agree to change the homeowner’s loan; and
- If the service provider tells the homeowner to stop paying the mortgage, the service provider must also tell the homeowner that the homeowner could lose the home and damage the credit rating.
The service provider also must explain in all communications to homeowners that they can stop doing business with the provider at any time, can accept or reject any offer from the lender, and, if the homeowner rejects the offer, they do not have to pay the provider’s fee. The provider also must disclose the amount of its fees.
The MARS Rule also prohibits mortgage relief providers from making any false or misleading claims about their services. Examples in the rule are:
- the likelihood of homeowners getting the results they seek;
- the provider’s affiliation with government or private entities;
- the homeowner’s payment and other mortgage obligations;
- the provider’s refund and cancellation policies;
- whether the provider has performed the services it promised;
- whether the provider will provide legal representation to homeowners;
- the availability or cost of any alternative to for-profit mortgage assistance relief services;
- the amount of money the homeowner will save by using their services; or
- the cost of the services.
A huge prohibition under the rule is that mortgage relief companies cannot tell homeowner to stop communicating with their lenders. The service provider also must have reliable evidence to back up any claims that the provider makes about the benefits, performance, or effectiveness of the services it provides.
The rule applies to mortgage brokers, realtors but not lawyers engaged in the practice of law. There are, in theory, ways for realtors to avoid the scope of the law depending on the advertising made by the realtor.
This article is merely a summary of the law. The MARS Rule is long and complex. Please read the Rule and work with acknowledgeable real estate or business attorney to ensure compliance with this new MARS Rule.
As always, Good luck and Happy Real Estate Investing.
Matthew A. Griffith, J.D. is a real estate and business attorney with the GRIFFITH LAW GROUP LLC, a frequent writer and speaker on real estate matters and an investor himself. You can contact Matt at Matt@IndyBizLaw.com or 317-663-0650. Or, follow him at www.AskMattOnline.com or www.IndyBizLaw.com. Learn more about responsible real estate investing at www.MyREIAdvisor.com, where Mr. Griffith is a frequent contributor and guest tele-class instructor.
This article is an overview of the topic, is merely educational, and is not to be considered legal advice. Each reader’s particular circumstances will differ. Readers should seek their own legal counsel and should not rely on this article to conduct their affairs.