The Federal Trade Commission (FTC) today announced a new policy which suspends enforcement of virtually all the Mortgage Assistance Relief Services (MARS) rules against real estate licensees involved in short sales. This is great news – but you’ll need to know a bit more to fully understand what it means to your practice.
As written, the MARS rules state that providers offering mortgage assistance relief services, including mortgage modification and short sale assistance, must make several disclosures to consumers and are prohibited from taking any advance fees in those transactions. These rules were created to deal with certain unscrupulous practices that had developed around short sales and mortgage modifications but clearly didn’t take into account the practical aspects of legitimate real estate transactions.
NAR has been working hard to get some changes from the FTC but when we last reported on this issue, the best they had gotten was an unofficial notice that the FTC likely wouldn’t enforce certain provisions against brokers and agents. This latest release now makes it official that most of the rules will not apply to real estate licensees.
This means that licensees generally do not need to make any of the disclosures in the rules, and that they are no longer prohibited from accepting advance fees.
BUT, there are two major caveats to this new exemption. First, it applies only to licensees involved in short sales, but not to those involved in other MARS services such as mortgage modifications. Simply put, the MARS rules don’t apply if you’re only helping with a short sale, but they do apply if you’re negotiating a modification or some other relief service that isn’t just a short sale.
Second, all rules against misrepresentations still apply. So while you don’t have to provide the disclosures when you’re working in a short sale, you still cannot misrepresent “any material aspect” of the services, such as the likelihood of success, the costs or the time involved in the process.
PAR will maintain its existing MARS forms for those members who find themselves involved in MARS transactions other than short sales, so you can comply with those rules. It is likely that lenders and other related service providers may not yet be aware of this policy change. You are encouraged to provide copies of the FTC policy to those providers, but if they insist on compliance you could use the MARS forms even though you may not be legally required to do so.