On December 1, 2010, the Federal Trade Commission (FTC) published the Mortgage Assistance Relief Services Rule (MARS Rule), addressing the practices of persons or entities providing mortgage assistance relief services. MARS services include marketing or providing services to assist financially distressed consumers in obtaining modifications of their mortgage loans or other foreclosure avoidance help.
Many of the MARS Rule disclosures were designed to protect homeowners against unreasonable promises and sharp tactics by those taking advantage of distressed property owners in trouble. While this disclosure language may be informative for a consumer working with a party assisting in loan modifications or other foreclosure relief strategies, it proved to be confusing and at times disruptive for real estate brokers working with sellers involved in short sale transactions. Sellers in short sales often struggle to comprehend the legalities of short sales, not to mention the sometimes seemingly illogical behavior of mortgage holders and servicers. They do not need the additional frustration of having to decipher cautionary language crafted for other scenarios. The warning appropriate for a proposed loan modification was awkward and did not fit well for a listing broker presenting the lender’s short sale approval agreement. That is why the National Association of REALTORS® (NAR) has been in negotiation with the FTC for many months to try to alleviate this situation. And that is why the success of NAR in forging an agreement with the FTC to suspend enforcement of the MARS disclosure rules with regard to brokers in short sales is so exciting and important for all REALTORS®.
On July 15, 2011, the FTC announced that it will refrain from enforcing most provisions of its MARS Rule against real estate professionals who assist consumers in obtaining short sales from their lenders or servicers. Real estate professionals acting in their licensed capacity will no longer need to comply with most of the Rule’s requirements, including the required disclosures, advance fee ban and recordkeeping requirements.
Under this agreement, the FTC will not enforce the MARS Rule against real estate professionals who are:
- Licensed and maintain good standing pursuant to state law requirements.
- In compliance with state laws governing the practices of real estate professionals.
- Assisting or attempting to assist a consumer in negotiating, obtaining or arranging a short sale of a dwelling in the course of securing the sale of the consumer’s home.
This agreement applies to both brokers and salespersons associated with the broker. So, if a salesperson assists a broker with a client’s short sale and meets the criteria listed above, the salesperson will also fall under the terms of the FTC’s agreement.
Not all real estate professionals are off the hook under this agreement. The FTC will still enforce the MARS Rule against misrepresentations made by a real estate professional while assisting a consumer in negotiating or obtaining a short sale. The FTC considers a misrepresentation to be a misleading or deceptive act affecting commerce. For example, the FTC could take action if a real estate broker promised the consumer that the broker could obtain a certain price for a short sale; misrepresented the types of services that the real estate broker could provide; claimed an expertise in short sales when this is not true; or promised a consumer, without any basis for the statement, that the consumer would not have to pay any deficiencies in the sale of their property. A licensee who makes such a misrepresentation to a short sale client would likely no longer be in compliance with license law; consequently, the licensee would no longer be protected by the FTC agreement and would be expected to comply with all of the provisions of the MARS Rule, including the required disclosures. For that reason, REALTORS® need to be careful to make realistic statements to their clients and market their services accurately; failing to do either could be seen as a misrepresentation.
Real estate professionals who provide mortgage assistance or foreclosure avoidance services, such as a short sale negotiation service or loan modifications, will need to comply with all of the requirements of the MARS Rule, including the disclosures. This includes the mandatory notice that must be included in all advertisements specifically marketing MARS to consumers, the Consumer-Specific Commercial Communication Disclosure that must be made in all communications to a particular consumer before the consumer enters into an agreement with the MARS provider, and the disclosure that must be made when any relief proposals are presented to the consumer. Those who must comply and make MARS disclosures should work with their attorney to draft the necessary documents to achieve proper disclosure under the MARS Rule.
If a licensee wishes to refer a consumer to a short sale negotiation specialist or another MARS provider, the licensee should proceed with great caution to avoid being seen as “arranging” the short sale negotiations. A licensee who “arranges” to have another person or entity conduct the MARS negotiations for a consumer is still required to comply with the MARS Rule. One possible way to avoid this problem is to offer the client a list of providers and allow the client to choose the MARS provider. Whether the real estate licensee is seen as arranging the transaction will be a factual determination. However, allowing the client to choose the provider and making it clear that the client is not required to use the listed MARS providers and may select another MARS provider should eliminate the need for compliance with the MARS rule.
The FTC’s non-enforcement agreement should have the effect of resolving this issue for real estate professionals who are acting in their licensed capacity. The FTC did not have an opportunity to amend the Rule itself because the rulemaking authority for MARS switched to the Consumer Financial Protection Bureau (CFPB) effective July 21, 2011. While the CFPB and each state’s attorney general can still enforce the MARS Rule as written, NAR expects that both the CFPB and state attorneys general will follow the FTC’s lead. The CFPB is a new agency, and NAR believes that the agency will defer to the FTC since it was the federal agency that created the MARS Rule. The CFPB published a statement that said, “official commentary, guidance, and policy statements issued prior to July 21, 2011, by a transferor agency with exclusive rulemaking authority for the law in question … will be applied by the CFPB pending further CFPB action.”
State attorneys general seeking to enforce the Rule will need to alert the FTC to these plans prior to filing any actions. If the FTC does not agree with the proposed state prosecution, the FTC can intervene in the state action and make its views about the action known to the court. All of this leads NAR to the conclusion that the FTC’s action will have the effect of staying the MARS Rule as the FTC as agreed. The Rule does not contain a private right of action for consumers who want to bring lawsuits for alleged violations of the MARS Rule.
NAR played an integral role in the FTC’s recent announcement that it will not enforce certain provisions of the MARS Rule against real estate professionals aiding consumers in short sales. This announcement is a substantial victory for REALTORS®. NAR will continue to work on obtaining a complete resolution of this issue.
A full copy of the FTC’s announcement can be found at www.ftc.gov/opa/2011/07/mars.shtm, and more information about the Rule is at www.ftc.gov/opa/2010/11/mars.shtm. NAR has information and background on the Rule at www.realtor.org/topics/mars.
For those practices that require MARS disclosures, see the extensive information, including some sample forms from NAR at www.realtor.org/letterlw.nsf/pages/0211mars?OpenDocument&Login and www.realtor.org/letterlw.nsf/pages/0511marsq&a?opendocument&login (NAR password protected).
Cori Lamont is Director of Brokerage Regulation and Licensing and Debbi Conrad is Senior Attorney and Director of Legal Affairs for the WRA.