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MARS Summary and Road Map to Disclosures – By AAR General Counsel K. Michelle Lind

The Federal Trade Commission (“FTC”) Mortgage Assistance Relief Services (“MARS”) Rule applies to any person that provides, offers to provide, or arranges for others to provide, any “mortgage assistance relief service.” A “mortgage assistance relief service” includes any service, plan, or program, offered or provided in exchange for consideration to assist or attempt to assist the consumer with negotiating, obtaining or arranging a short sale. Thus, despite initial uncertainty about this issue, it is now clear that a broker negotiating a short sale with a lender on behalf of the seller must comply with the MARS Rule.

 Not surprisingly, AAR continues to receive inquiries regarding this new Rule. AAR has been diligently working to provide answers. AAR’s Risk Management Committee is meeting to determine if any of the MARS disclosures should be incorporated into AAR’s existing Short Sale forms and to develop any necessary separate MARS disclosure forms. Since this is a federal rule, NAR has been working with the FTC and has published a summary of the Rule. Read the summary online.

 The FTC has published The Mortgage Assistance Relief Services Rule: A Compliance Guide for Business (February 2010) (“FTC Guide–), which is available at: http://business.ftc.gov/documents/bus76-mortgage-assistance-relief-services-rule. Every broker involved with short sales should carefully read this FTC Guide.

 The FTC Guide states:

  • Real Estate Agents. The Rule covers real estate agents who promote their services as a way to help consumers to avoid foreclosure, for example, by getting a lender’s approval for a short sale. However, the Rule doesn’t cover real estate agents who don’t promote their services this way, and who only provide services to help people in buying or selling homes — like listing homes for sale, showing homes, or finding homes that meet buyers’ needs.

 THE FOLLOWING IS A SUMMARY OF THE MARS REQUIREMENTS

 (1) NO ADVANCE FEES

The Rule contains a prohibition against requesting or receiving any advance payment of any fee or other consideration until the seller has executed a written agreement between the seller and the lender or servicer incorporating the terms of the short sale offer.

 The FTC Guide states:

You can’t collect any fees for intermediate steps you take as part of the process. For example, it would be illegal to charge separately for:

  • conducting an initial consultation with a customer;
  • reviewing or auditing a customer’s mortgage or foreclosure documents to detect errors, including “robo signing” or title problems;
  • gathering financial or other information from a customer;
  • sending an application for mortgage relief or any other request to a customer’s lender or servicer;
  • communicating with a lender or servicer on a customer’s behalf; or
  • responding to requests for information from a customer’s lender or servicer.

Notably, in Arizona a real estate licensee may not receive additional compensation for negotiating a short sale, unless also licensed as a loan originator by the Arizona Department of Financial Institutions and the requirements of A.R.S. § 32-2155(C) are met. See, ADRE Informational Alert (February 15, 2011) at: www.azre.gov/PublicInfo/Documents/Short_Sale_Negotiator_Regulations.pdf.

 The ADRE Informational Alert also states: “[a]ny fee, refundable or non-refundable, that a broker/salesperson requests or receives from a consumer to negotiate, obtain or arrange a short sale, in advance of an executed agreement between the consumer and his or her lender or servicer that incorporates the final terms that the lender or servicer will agree to, violates the advance fee ban described in section 322.5 of the Federal Trade Commission’s MARS Rule.”

 (2) DISCLOSURES IN ADVERTISING

The FTC guide states:

The Rule requires certain disclosures in what it calls “general commercial communications” — that is, advertising meant for a general audience, like ads on TV, radio, or the Internet.

The clear and prominent advertising disclosure must state:

IMPORTANT NOTICE (in two-point type larger than the font size of the disclosure): (Name of company) is not associated with the government, and our service is not approved by the government or your lender. Even if you accept this offer and use our service, your lender may not agree to change your loan. [If the broker represents that the seller should stop making payments add: "If you stop paying your mortgage, you could lose your home and damage your credit rating"]

Communications disseminated orally or through audible means must be preceded by the statement “Before using this service, consider the following information.”

(3) DISCLOSURES IN COMMUNICATIONS WITH PROSPECTIVE CUSTOMERS

The FTC Guide states:

The Rule requires additional disclosures in any “consumer-specific commercial communication” — that is, a letter, phone call, email, text, or the like, directed at a specific person you’re soliciting for your service.

The clear and prominent disclosure required in every communication with a prospective customer must state:

IMPORTANT NOTICE (in two-point type larger than the font size of the disclosure): You may stop doing business with us at any time. You may accept or reject the offer of mortgage assistance we obtain from your lender [or servicer]. If you reject the offer, you do not have to pay us. If you accept the offer, you will have to pay us (insert amount or method for calculating the amount) for our services. (Name of company) is not associated with the government, and our service is not approved by the government or your lender. Even if you accept this offer and use our service, your lender may not agree to change your loan. [If the broker represents that the seller should stop making payments add: &8220;If you stop paying your mortgage, you could lose your home and damage your credit rating”]

Communications disseminated orally or through audible means must be preceded by the statement “Before using this service, consider the following information” and, in telephone communications, must be made at the beginning of the call.

 (4) TWO SEPARATE DISCLOSURES WHEN PRESENTING A SHORT SALE OFFER FROM THE LENDER OR SERVICER

The FTC Guide states:

Under the Rule, when you give a customer an offer of mortgage relief from their lender or servicer, you have additional disclosure requirements…

The first clear and prominent disclosure must be on a separate written page and state:

IMPORTANT NOTICE: Before buying this service, consider the following information (in two-point type larger than the font size of the disclosure): This is an offer of mortgage assistance we obtained from your lender [or servicer].You may accept or reject the offer. If you reject the offer, you do not have to pay us. If you accept the offer, you will have to pay us [same amount as disclosed previously] for our services. [If the broker represents that the seller should stop making payments add: “If you stop paying your mortgage, you could lose your home and damage your credit rating”]

The second disclosure the broker must provide is a separate notice from the lender or servicer. The FTC Guide states:

You have to give your customer a separate one-page written notice from the customer’s lender or servicer that explains all material differences between the offer of mortgage relief you got from the lender or servicer and the customer’s current loan.

(5) TRUTH IN ADVERTING SERVICES

The Rule contains prohibitions against making certain representations and misrepresentations.

 The FTC Guide states:

Under the Rule, it’s illegal to misrepresent, either expressly or by implication, any “material aspect” of your services. That includes any information that’s likely to affect a consumer’s decision to use your service or choose one service over another. [Examples Omitted]…

 In addition, if you make claims about the benefits, performance, or efficacy of your services, your statements must be truthful and you must have competent and reliable evidence to back them up. [Examples Omitted]…

 Beyond requiring that your claims are truthful, the Rule makes it illegal to tell a customer or potential customer to stop communicating with their lender or servicer.

 (6) RECORD-KEEPING AND MONITORING REQUIREMENTS

The Rule requires certain records be retained for at least two years and reasonable steps to ensure employees and independent contractors comply with the Rule. The records that must be retained include: (i) advertising and promotional materials; (ii) sales records; (iii) communications with customers; and (iv) agreements with customers.

 In addition to the foregoing, it is a violation of the Rule for a person to provide substantial assistance or support to any mortgage assistance relief service provider when that person knows or consciously avoids knowing that the provider is engaged in any act or practice that violates this Rule.

 The Attorney General is authorized to bring an action to enforce the Rule. To review the MARS Rule in its entirety, go to www.ftc.gov/os/fedreg/2010/december/R911003mars.pdf

 In conclusion, the FTC Guide states:

Questions about the MARS Rule? Contact:

Division of Financial Practices
Bureau of Consumer Protection
Federal Trade Commission
Washington, DC 20580
(202) 326-3224

 Disclosure #1: ADVERTISING

The Rule requires disclosures in “general commercial communications,” such as advertising short sale services. The clear and prominent advertising disclosure must state:

IMPORTANT NOTICE (in two-point type larger than the font size of the disclosure): (Name of company) is not associated with the government, and our service is not approved by the government or your lender. Even if you accept this offer and use our service, your lender may not agree to change your loan. [If the broker represents that the seller should stop making payments add: “If you stop paying your mortgage, you could lose your home and damage your credit rating”]

Communications disseminated orally or through audible means must be preceded by the statement “Before using this service, consider the following information.”

Disclosure #2: COMMUNICATIONS WITH PROSPECTIVE CUSTOMERS

The Rule requires additional disclosures in any “consumer-specific commercial communication,” such as communication with a specific prospective client regarding a short sale transaction. The clear and prominent disclosure required in every communication with a prospective client must state:

IMPORTANT NOTICE (in two-point type larger than the font size of the disclosure): You may stop doing business with us at any time. You may accept or reject the offer of mortgage assistance we obtain from your lender [or servicer]. If you reject the offer, you do not have to pay us. If you accept the offer, you will have to pay us (insert amount or method for calculating the amount) for our services. (Name of company) is not associated with the government, and our service is not approved by the government or your lender. Even if you accept this offer and use our service, your lender may not agree to change your loan. [If the broker represents that the seller should stop making payments add: “If you stop paying your mortgage, you could lose your home and damage your credit rating”]

Communications disseminated orally or through audible means must be preceded by the statement “Before using this service, consider the following information” and, in telephone communications, must be made at the beginning of the call.

 Disclosure #3: WHEN PRESENTING A SHORT SALE OFFER FROM THE LENDER OR SERVICER

When presenting the seller with the lender’s short sale approval letter, the Rule requires two disclosures.

The first is a clear and prominent disclosure on a separate written page that states:

IMPORTANT NOTICE: Before buying this service, consider the following information (in two-point type larger than the font size of the disclosure): This is an offer of mortgage assistance we obtained from your lender [or servicer].You may accept or reject the offer. If you reject the offer, you do not have to pay us. If you accept the offer, you will have to pay us [same amount as disclosed previously] for our services. [If the broker represents that the seller should stop making payments add: “If you stop paying your mortgage, you could lose your home and damage your credit rating”]

The second disclosure the broker must provide is a separate notice from the lender or servicer that explains all material differences between the offer of mortgage relief you got from the lender or servicer and the customer’s current loan.

Sample Disclosure Forms

AAR has developed sample MARS disclosure forms (Microsoft Word), which can be downloaded from the links below:

Please consult your designated broker or independent legal counsel about the use of the sample forms.

Additional Information

 For Answers to Questions about the MARS Rule

Division of Financial Practices
Bureau of Consumer Protection
Federal Trade Commission
Washington, DC 20580
(202) 326-3224