Highlights of the Mortgage Assistance Relief Services (MARS) Rule
HIGHLIGHTS OF THE MORTGAGE ASSISTANCE RELIEF SERVICES (MARS) RULE
The Federal Trade Commission (FTC) has issued a final rule that will impact certain real estate professionals who represent clients that may be involved in a short sales transaction. This memo will highlight those portions of the rule applicable to real estate agents.
I. The MARS Rule Explained
In 2009, President Obama signed the Credit CARD Act. This statute clarified the FTC’s rulemaking authority and specified that said rulemaking “shall relate to unfair or deceptive acts or practices regarding mortgage loans, which may include unfair or deceptive practices involving loan modifications and foreclosure rescue services.” Pursuant to the authority granted under the Credit CARD Act and the FTC’s finding that deceptive and unfair trade practices were common in the provision of mortgage assistance relief services, the FTC adopted the MARS rule which went into effect on December 29, 2010.
II. Scope of the Rule - to Whom Does it Apply
While the MARS rule is primarily directed at companies that offer loan modification services to consumers, and arguably does not apply to real estate agents unless they charge a separate fee for mortgage assistance relief services, as stated the MARS rule applies to individuals or companies who provide mortgage assistance relief services relating to a residential structure concerning four or fewer units. A mortgage assistance relief service provider is someone who provides, offers to provide, or arranges to provide, any mortgage assistance relief service. A mortgage assistance relief service is defined as a service, plan, or program offered or provided to the consumer in exchange for consideration that provides services in relation to a consumer’s mortgage, including negotiating a possible loan modification, directing a consumer to stop or otherwise alter the amount of his/her mortgage payment, modifying the consumer’s payment arrangements, or negotiating a short sale of a dwelling on behalf of a consumer.
In general, the final MARS rule covers short sale negotiations, prohibits certain representations and advance payments and requires certain disclosures and recordkeeping. Based on these definitions, the MARS rule appears to apply to real estate licensees who:
- market themselves to consumers as a MARS provider (i.e., a short sale specialist); or
- negotiate, obtain and arrange short sales with a lender on behalf of a seller; or
- refer consumers to MARS providers for short sale negotiation services.
III. Prohibited Representations
The MARS rule prohibits mortgage assistance relief service providers from engaging in certain conduct. Real estate licensee to whom the MARS rule applies may not:
- represent that a seller cannot or should not communicate with his or her lender or servicer;
- misrepresent (i) the likelihood of obtaining a particular result, (ii) the amount of time that it will take to obtain any result (iii) that the licensee is affiliated, endorsed or approved by any governmental agency or non-profit organization (iv) the obligation to make payments on any loan relating to the a consumer’s residence or the terms or conditions of that loan (v) the terms and costs of any mortgage assistance relief services and the availability of any non-profit alternatives or (vi) that the consumer will receive legal representation;
- represent the benefits or effectiveness or any mortgage assistance relief service without competent and reliable evidence that the representation is true.
IV. Required Disclosures
There are three types of disclosures that a real estate licensee may need to make to consumers. Which disclosure(s) need to be made depends on the circumstances as described below. The forms are available now in both Transaction Desk and ZipForms.
A. General Commercial Communications – A real estate licensee who advertises mortgage assistance relief services to the general public which is not directed at a specific consumer will need to include a disclosure in all advertisements. This required disclosure is now found in the form created by the Montana Association of REALTORS® (MAR) entitled “Mortgage Assistance Relief Services Disclosure for General Commercial Communications” and must be provided in any written materials, radio and TV communications, infomercials, Internet communications, cellular network communications, promotional materials or any other medium of communication.
A licensee that specifically solicits business from short sale sellers will need to include the disclosures in all of his or her advertisements, including telephone solicitations. An advertisement identifying a licensee as having the SFR designation from the National Association of REALTORS®, without more, is likely outside of the MARS advertising rules. However, an advertisement promoting a licensee’s short sales business will likely need to comply with the rules, since the average consumer would have the impression that these advertisements are from a MARS provider.
B. Consumer Specific Commercial Communications – A real estate licensee who intends to negotiate or communicate with a lender concerning a specific short sale transaction must provide a disclosure once the licensee is aware that a transaction may involve a short sale and before the licensee begins to provide any mortgage assistance relief services on behalf of the consumer. This required disclosure is now found in the form created by MAR entitled “Mortgage Assistance Relief Services Disclosure for Consumer Specific Commercial Communications.”
If the licensee is aware that the transaction will involve a short sale at the time of the listing, the disclosure should be made with the listing. A licensee who doesn’t learn that a short sale is required until the first offer is received will not need to make disclosures until that time. In this regard, the time for disclosure is similar to the requirement that many MLSs impose upon participants which states that a participant has a duty to let other MLS participants know about the possibility for a short sale when it is “reasonably known” by the listing broker.
Licensees representing buyers may also need to make this disclosure if they negotiate a modification of the seller’s loan with a lender while representing a potential buyer. This is because the a buyer’s agent is considered a MARS provider if he/she negotiates the terms of the short sale with a lender even though the buyer agent does not represent the seller.
C. Disclosure When Providing an Offer of Mortgage Relief – The third disclosure is a two-part disclosure. The first part needs to be provided at the time the real estate licensee presents a client with a lender’s short sale approval letter. MAR has created a form entitled “Mortgage Assistance Relief Services Disclosure to Accompany a Written Offer or Approval Letter from a Short Sale Lender” for a licensee to provide with any offer from a client’s lender.
The second part needs to accompany any notice a licensee provides to a seller that is from a seller’s lender and that describes all material differences between the seller’s current loan and the lender’s proposal to modify the loan if the seller accepts the short sale offer, which may include the lender holding the seller liable for the deficiency amount. The MAR form to use in this situation is entitled “Mortgage Assistance Relief Services Disclosure to Accompany Notice from a Short Sale Lender Describing Material Differences in Loan Terms, Conditions and Limitations.” Often the information concerning changes in the terms of a seller’s loan will be contained in the lender’s short sale approval letter. If that is the case the licensee should provide both parts of this disclosure together at the time the licensee provides the seller with a lender’s short sale approval letter.
V. Prohibition on Collection of Advance Payments
The MARS rule prohibits the receipt of upfront fees. Under this prohibition a licensee who provides mortgage assistance relief services may not collect a fee from the seller until the seller and the lender have entered into written agreement concerning the short sale.
As stated above, included within the definition of a MARS provider is someone who arranges for others to provide any mortgage assistance relief service. Therefore, any licensee referring a client to a MARS provider in exchange for a referral fee will need to be careful that he or she is not “arranging” the mortgage relief services for his or her client without complying with the MARS disclosure requirements. To attempt to avoid any perception that a licensee is “arranging” the mortgage relief services for his or her client a licensee who desires to make such a referral may wish to consider offering the licensee’s client a list of providers from which the client may choose a MARS provider. The licensee should also disclose upfront any referral fee arrangements with the MARS provider to the licensee’s client.
VII. Recordkeeping Requirements
The final requirement imposed on real estate licensees by the MARS rule relates to recordkeeping and compliance. For a period of at least twenty-four (24) months from the date a document is created, generated or received, licensees to whom the MARS rule applies must keep copies of:
- all agreements between the licensee and any consumer;
- all written communications between the licensee and any consumer that were exchanged prior to the date on which any agreement was entered into for mortgage assistance relief services;
- documents containing client contact information (name, address and telephone number), descriptions of MARS services purchased by a client and how much the client paid; and
- all sales scripts, documents or recordings or commercial communications (the disclosures) or other marketing materials. However, a licensee need not keep separate copies of sales documents that have minor, immaterial differences.
MARS providers must also take reasonable steps to monitor and ensure that all employees and independent contractors comply with the MARS rule. Such steps must include the monitoring of communications directed at specific consumers, establishing a procedure for receiving and responding to complaints, investigating these complaints and taking corrective action to correct and non-compliance of any employee or independent contractor. Finally, the MARS rule requires real estate licensees to whom the MARS rule applies to maintain any information and materials necessary to demonstrate compliance with the requirements of the MARS rule. Demonstration of compliance with the obligations to ensure that employees and independent contractors comply with the MARS rule may be accomplished by adopting certain provisions into existing office policies or agent contracts.
The FTC has published a compliance guide relating to the MARS rule. A copy of this may be downloaded from http://www.ftc.gov/opa/2011/02/pdf/110210mars_business.pdf. In this guide the FTC states that the MARS rule “covers real estate agents who promote their services as a way to help consumers to avoid foreclosure, for example, by getting a lender’s approval for a short sale. However, the Rule doesn’t cover real estate agents who don’t promote their services this way, and who only provide services to help people in buying or selling homes – like listing homes for sale, showing homes, or finding homes that meet buyers’ needs.” If a real estate licensee represents clients in short sales, takes an upfront fee for his/her services, or promotes himself/herself to potential short sale sellers, the real estate licensee needs to be aware of the requirements and prohibitions of the MARS rule and the disclosure requirements as set forth above.