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What’s The “MARS Rule” in Real Estate?

MARS rule and real estateQuestion: We’re interested in buying a local short sale because of the possible discounts. We know that we must reach an agreement with the owner and that the deal must be approved by the lender. Does the broker representing the seller negotiate with the lender to get the best deal?

Answer: This is a matter which is in transition and may depend on where you live. It is possible that the answer to your question is no, the broker cannot negotiate with the lender. Let me explain:

In a short sale we have an owner who wants to sell but the market value of the property is less than the outstanding mortgage balance. One solution to this problem would be for the owner to pay any shortage with cash at closing. However, most owners do not have such money and therefore must ask the lender to approve the sale. The lender, in reality, is being asked to accept a loss on the loan.

One result of tough times has been the emergence of scammers who claim they can negotiate with lenders to stop foreclosures and get the best possible deal for short sellers — if only the owners will pay a fee up-front. There are numerous cases of owners not receiving promised services, so many that in 2010 the Federal Trade Commission announced the “Mortgage Assistance Relief Services” (MARS) rule. It bans false claims while up-front charges are generally prohibited except for attorneys.


The FTC made another exception: In 2011 it said it would not enforce some parts of the MARS rule with real estate brokers. But what about state regulators? In Maryland, as an example, real estate brokers are not allowed to negotiate with lenders unless they also comply with the state MARS rule.

Under the Maryland rule, licensees are prohibited from doing any of the following unless they also have a state MARS license:

  • Collecting any monies in addition to the real estate brokerage sales commission from a short-sale client. The MD MARS Act prohibits the collection of up-front fees in connection with short-sale services.
  • Assisting 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.
  • Representing 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.
  • Representing to a homeowner that the Licensee can save the owner’s home, stop foreclosure, or obtain a short-sale.
  • Advising a homeowner regarding the benefits of a strategic default; that is, purposely failing to make mortgage payments.
  • Making 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: Brokers can readily help short sale buyers and sellers and they can transmit offers to lenders. However, negotiations with lenders may be restricted to attorneys and licensed mortgage assistance relief providers. For specifics, speak with brokers and attorneys in your jurisdiction.

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Syndicated originally to newspapers nationwide by Content That Works. Revised, modified, expanded and updated. Posted with permission.

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