Today the FTC announced the new Mortgage Assistance Relief Services (MARS) Rule, putting in place sweeping changes to protect homeowners from scams that have fallen on the heels of the mortgage crisis.
In the more than 30 law enforcement actions the FTC has brought to date, the typical M.O. is for operators to falsely claim that – for a fee – they’ll negotiate with the homeowner’s mortgage lender or servicer to get a loan modification, a short sale, or other relief from foreclosure. Many of these companies pretend to be affiliated with the government and government housing assistance programs.
A key provision of the new rule is a ban on advance fees. Companies can’t collect a penny until they’ve given customers a written offer from their lender or servicer that the customer decides is acceptable and a document from the lender or servicer describing the key changes to the mortgage that would result if the customer accepts the offer. Companies also must remind customers of their right to reject the offer without any charge.
In addition, the rule requires companies to disclose key facts designed to help homeowners get the information they need to make an informed decision. In their advertising and in communications directed at individual consumers – like telemarketing calls – companies must disclose:
- that they’re not associated with the government and their services have not been approved by the government or their lender;
- that the lender might not agree to change a customer's loan; and
- that customers could lose their home and damage their credit rating if they stop paying their mortgage.
Under the new rule, companies must explain that customers can stop doing business with them at any time and that they can accept or reject any offer the company gets from the lender or servicer. In addition, companies must disclose their fee and tell customers they don’t have to pay if they reject the offer. The rule also bars mortgage relief companies from advising customers to stop communicating with their lenders or servicers and bans false or misleading claims about mortgage relief services.
Attorneys, take note. You’re generally exempt from the rule if you meet three conditions: 1) you’re engaged in the practice of law; 2) you’re licensed in the state where the homeowner or the home is located; and 3) you’re complying with state laws and regulations governing attorney conduct. To be exempt from the advance fee ban, attorneys must meet a fourth requirement. You must place any fee you collect in a client trust account and abide by state laws and regulations covering those accounts.
The rule goes into effect on December 29, 2010, except for the advance fee ban, which kicks in on January 31, 2011.
Know someone who's struggling to pay the mortgage? The FTC's Money Matters site offers practical advice on evaluating the options, including tips on spotting a foreclosure rescue scam.