Homeowners facing foreclosure are often desperate for a way to hold on to their homes and some companies claim they can help fight off foreclosure by negotiating new mortgage terms with lenders or servicers. The Federal Trade Commission has issued a rule in an attempt to curb unfair and deceptive practices associated with mortgage assistance relief services.
Companies and individuals that offer mortgage assistance relief services – or work with companies that do – should know the provisions of the Mortgage Assistance Relief Services (MARS) Rule.
If your business is a for-profit provider of mortgage assistance relief services, the MARS rule applies to you.
This guide, which represents the views of FTC staff and is not binding on the Commission, offers tips on complying with the Rule. Here are some compliance highlights:
• It’s illegal to charge upfront fees. You can’t collect money from a customer unless you deliver – and the customer agrees to – a written offer of mortgage relief from the customer’s lender or servicer.
• You must clearly and prominently disclose certain information before you sign people up for your services. You must tell them upfront key information about your services, including the total cost, that they can stop using your services at any time, that you’re not associated with the government or their lender and that their lender may not agree to change the terms of their mortgage.
• If you advise someone not to pay his or her mortgage, you must clearly and prominently disclose the negative consequences that could result. You must warn customers that failure to pay could result in the loss of their home or damage to their credit rating.
• Don’t advise customers to stop communicating with their lender or servicer. Under the Rule, it’s illegal to tell people they shouldn’t communicate with their lender or servicer.
• You must disclose key information to your customer if you forward an offer of mortgage relief from a lender or servicer. You must give your customer a written notice from the lender or servicer describing all material differences between the terms of the offer and the customer’s current loan. You also have to tell your customer that if the lender or servicer’s offer isn’t acceptable to them, they don’t have to pay your fee.
• Don’t misrepresent your services. Under the Rule, it’s illegal to make claims that are false, misleading, or unsubstantiated.
Here’s how the rule applies to businesses in the mortgage industry:
Mortgage Brokers. The rule covers mortgage brokers who promote loan origination or refinancing transactions as a way for homeowners to avoid foreclosure. Mortgage brokers who don’t promote their services this way generally aren’t covered.
Real Eestate 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, it 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.
Lenders and servicers. The rule doesn’t cover lenders and servicers that offer mortgage assistance relief services in connection with loans they own or service. For example, the rule wouldn’t apply if a business that services a homeowner’s loan helps the homeowner in modifying the loan to avoid foreclosure.
What about disclosure?
The rule spells out several key pieces of information you must disclose clearly and prominently to consumers.
The rule requires certain disclosures in what it calls “general commercial communications” – that is, advertising meant for a general audience, like ads on television, radio, or the Internet. In those ads, you must clearly and prominently disclose two key facts, in these words:
• [Name of your company] is not associated with the government, and our service is not approved by the government or your lender;” and
•”Even if you accept this offer and use our service, your lender may not agree to change your loan.”
The two disclosures must be presented together.
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. In every communication you have with prospective customers, the Rule requires that you clearly and prominently disclose three key facts, in these words:
• “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 your 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.”
The three disclosures must be presented together.
When you give a customer an offer of mortgage relief from their lender or servicer, you have additional disclosure requirements:
You have to give your customer a separate written page that clearly and prominently says “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 you disclosed upfront] for our services.”
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.