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Will Your Mortgage Modification Be A Rip-Off?

If someone asks you to pay in advance to avoid foreclosure or get a mortgage modification then red flags should go up. That’s the color of the Martian soil, a thought which brings us to the MARS rule.

The MARS rule – or the Mortgage Assistance Relief Services rule – is the regulation used by the Federal Trade Commission to stop mortgage relief frauds. An important feature of this rule is that it generally prohibits mortgage relief companies from charging fees in advance but there’s one big exception:

“Attorneys,” says the FTC, “are generally exempt from the rule if they meet three conditions: they are engaged in the practice of law, they are licensed in the state where the consumer or the dwelling is located, and they are complying with state laws and regulations governing attorney conduct related to the rule. To be exempt from the advance fee ban, attorneys must meet a fourth requirement – they must place any fees they collect in a client trust account and abide by state laws and regulations covering such accounts.”

You’re not allowed to charge a distressed homeowner a fee in advance for mortgage relief services unless you’re a lawyer. In that case you can charge a fee but you must first place the money in an escrow account. How long an attorney must keep that money in escrow is unclear since the cash is payment for services.

“Since 2008, the FTC has brought more than 40 cases against companies peddling fraudulent mortgage relief schemes,” according to the government. The catch is that it could not possibly have brought more than 40 cases under the advanced-fee provision of the MARS rule because that requirement only went into effect on January 31, 2011.


Lawyers & Pro Bono Services

Lawyers – to their credit – have provided a lot of free legal services to homeowners facing loan modifications, short sales and foreclosures. As an example, when the chief justice of Maryland asked attorneys to help homeowners facing foreclosure more than 1,000 lawyers signed up for the pro bono effort.

The problem is that some mortgage modification programs are not actually law firms despite names and pitches which imply otherwise. Some scam artists are not even in the US – they call troubled homeowners from outside our borders.

So why do we have a fee exception for lawyers? Because everyone should be able to get legal representation and lawyers should have the right to charge for their services.

Free Help

If you need mortgage modification assistance or foreclosure prevention help you can get free information from these resources:


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