Dos and Don’ts of Working Short Sales & Loan Modifications
Mars is the second closest and only red planet near Earth. It’s also the name of a program real estate investors need to know about – Mortgage Assistance Relief Services. It’s one more requirement from the Federal Trade Commission to protect consumers.
And, if you’re a real estate investor, it’s important to help protect consumers from scams. As an investor you must negotiate short sales appropriately under the new MARS ruling from the FTC.
FTC Chairman Jon Leibowitz says, “At a time when many Americans are struggling to pay their mortgages, peddlers of so-called mortgage relief services have taken hundreds of millions of dollars from hundreds of thousands of homeowners without ever delivering results. By banning providers of these services from collecting fees until the customer is satisfied with the results, this rule will protect consumers from being victimized by these scams.”
Who are the scammers?
The FTC calls them bogus operations that in exchange for an upfront fee will negotiate with a homeowner’s mortgage lender to get one of the following – a loan modification, a short sale or other relief from foreclosure.
These groups often claim to be affiliated with a government agency or the government housing assistance programs.
What does this mean to real estate investors?
Some of the work you do to get deals requires that you negotiate with a homeowner to do a loan modification or short sale. The easiest way to be in compliance is to know what you can and can’t do in negotiations.
The biggie is that you can’t charge an up-front fee. That’s fairly simple, don’t you think? I think it is. I mean you’re trying to get a deal, not $100 quick bucks.
Here’s what that quick money could turn into – mega fines in the ballpark of $11,000 per occurrence and $11,000 per day that you are in violation.
Here’s the breakdown of the rules.
Advance Fee Ban
- You can’t collect fees until you have provided the homeowner a written offer from their lender or servicer that the consumer deems acceptable.
- The mortgage holder must provide a written document describing the consequences of accepting the offer.
- You must also remind consumers that they have the right to refuse the offer – without any fees.
In all of your communications, your company must disclose the following:
1. You are not associated with the government or endorsed by the government.
2. The lender can refuse to modify the homeowner’s loan.
3. If a homeowner stops paying their mortgage, they could lose their home and damage their credit.
4. The homeowner can walk away from the deal at any time before accepting the lender or servicer’s offer AND that they are not required to pay your negotiation fee.
5. Your fees for negotiating the terms of the short sale or loan modification.
What You Can’t Claim
- the likelihood of consumers getting the results they seek;
- the company’s affiliation with government or private entities;
- the consumer’s payment and other mortgage obligations;
- the company’s refund and cancellation policies;
- whether the company has performed the services it promised;
- whether the company will provide legal representation to consumers;
- the availability or cost of any alternative to for-profit mortgage assistance relief services;
- the amount of money a consumer will save by using their services; or
- the cost of the services.
A Big No-No
If you tell your prospective homeowner customer to stop communicating with their lenders or servicers, you’re in violation.
If you claim that you can help a homeowner, the FTC says you have to have “reliable evidence” of your claims about the benefits, performance or effectiveness of how you negotiate.
Where Do These Rules Apply Most?
There are two scenarios where these rules apply most – subject to and carry back loans. In both cases, you are either taking over financing or making a loan modification. You need to follow the rules and you’ll be fine.