It used to be that there were plenty of people who could grease the wheels if you got into mortgage trouble. Instead of a short sale or foreclosure these lovely folks — some of whom claimed government recognition and approval — would negotiate for you with the lender so you could walk away from the property without debt or worries. There was, of course, a small payment to be made for such services. In advance….
Such cons largely came to a halt in 2010 when the Federal Trade Commission announced the Mortgage Assistance Relief Services (MARS) rule. Except for attorneys providing legal services, it generally bans fees paid in advance to “relief” providers. Also, the rule stops such things as claiming government approval. Basically, it wants to end false promises to homeowners and shams where money is paid for nothing.
FTC MARS Rule
“Companies,” said the FTC, “also must explain 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. The companies also must disclose the amount of the fee.”
In 2011 the FTC amended the rule, saying it would not enforce “most provisions” with licensed real estate professionals and that brokers could “assist or attempt to assist consumers in obtaining short sales in the course of securing the sales of their homes.” The stay exempts real estate professionals who meet certain requirements “from the obligation to make disclosures and from the ban on collecting advance fees. These professionals, however, remain subject to the Rule’s ban on misrepresentations.”
For a lot of brokers who work with short sales and foreclosures the FTC’s MARS rule settles the issue. Helping with short sales and foreclosures good, false claims bad. Got it. However, that’s not quite the case. Now we have at least one state regulator entering the picture.
The Maryland Model
Maryland has its own MARS law. To offer foreclosure relief services in the state you must be licensed as a Mortgage Assistance Relief Services provider under the state law.
Maryland, of course, also licenses real estate brokers and sales people. Now the Maryland Real Estate Commission has come out with guidelines which essentially say that brokers may help homeowners who run into tough times — but they must also have a Maryland MARS license if they want to negotiate mortgage and loan terms with a lender.
Here’s what Maryland real estate professionals cannot do unless they have a separate MARS license:
___ Collect any monies in addition to the real estate brokerage sales commission from a short sale client.
___ Assist a seller in negotiating with the lender/servicer or other lienholder to obtain approval for a short-sale, release of lien, modification of a promissory note, waiver of deficiency, or to otherwise prevent or obtain relief from a foreclosure.
___ Represent to the public that the licensee: (1) can assist in preventing foreclosure; (2) is an “expert” in short-sales; (3) can arrange refinancing; or (4) will contact creditors on the owner’s behalf.
___ Make representations to a homeowner that the licensee can save the owner’s home, stop foreclosure, or obtain a short-sale.
___ Provide advice to a homeowner regarding the benefits of a strategic default.
___ Make any predictions with regard to the likelihood of the waiver of a deficiency or the payment of relocation costs in a short-sale.
The bottom line: Maryland real estate brokers can help buyers and sellers with a short sale and they can transmit the offer to a lender. However, they cannot “negotiate” with a lender. To negotiate with a lender owners will need an attorney or someone with a MARS license.
The bigger bottom line: Watch as other states follow the Maryland legislation.