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- What Are Netting Escrows & How Does It Work?: The Best Guide - January 2, 2024
- The Secret About Prescriptive Easement: Top Guide 1 Must Know - December 4, 2023
- About Home Equity Loans In Texas And How Can One Obtain It - November 27, 2023
What is the MARS Rule?
To protect distressed homeowners from mortgage relief scams that have sprung up during the mortgage crisis the Federal Trade Commission issued Mortgage Assistance Relief Services (MARS Rule).
An advance-fee ban, advertising restrictions, and disclosure and record-keeping requirements on companies and individuals involved in MARS-related activities have been imposed by the MARS Rule.
Who is Covered?
When real estate brokers, agents, and mortgage lenders provide, offer to provide, or arrange for others to provide mortgage relief services or refer a customer to a MARS services provider in an attempt to stop a foreclosure or obtain lender approval of a short sale all are included in the rule.
The MARS activity is defined by the FTC rule as including negotiating, obtaining, and arranging a short sale.
So an agent or broker who performs the following services would belong to the definition of a MARS services provider and would be covered by the MARS Rule
He negotiates a short sale with a lender or servicer in place of a client.
They are engaged in the business of assisting consumers to avoid foreclosure by negotiating a short sale with a lender.
This means that they are covered if they advertise their ability to assist clients with avoiding foreclosure by negotiating a short sale.
They refer a consumer to someone who is a MARS provider of short-sale negotiation services.
What must a Servicer Do?
If since January 1, 2011, a servicer has done any of the activities mentioned above, he will need to make the appropriate disclosure(s) and meet certain record-keeping requirements.
Under the MARS Rule, depending upon what activity they have been performing, they must provide one or more types of disclosure mentioned here:
The General Commercial Communications Disclosure: This disclosure must be included when the servicer advertises in any MARS services that are not directed to a specific consumer.
Any written material, radio or television commercials, advertisements on the internet, etc are all included in it.
The following language must be used in print advertisements: Stating – IMPORTANT NOTICE – (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.
The following language must be used in all communications circulated orally or through audible means – Before using this service, consider the following information.
(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.
When the consumer enters into an agreement for MARS the Consumer-Specific Commercial Communications Disclosure, which is consumer specific must be provided at that time.
For example, you must immediately provide a consumer with this disclosure when he walks into your office and enters into an agreement with you for any of the covered activities.
If you refer a consumer to someone who will provide them with MARS, you must still provide this disclosure at the time you make the referral. (NVAR Form K1357 MARS Consumer Specific Disclosure)
The Disclosure When Providing an Offer of Mortgage Relief is the final type of disclosure – It must be made when the lender provides an offer of mortgage relief to the seller.
For instance, the disclosure must be provided immediately when the seller receives a short sale approval letter incorporating the offer of mortgage relief. (NVAR Form K1358 MARS Offer of Mortgage Relief Disclosure)
If the servicer does not charge any additional fee for assisting his seller/buyer with a short sale transaction, will the MARS rule apply to him?
If the servicer had substantive conversations with their client concerning a short sale and/or direct contact with the seller’s lender in regards to a short sale pre-approval or the negotiation of a short sale contract, they are subject to the MARS Rule regardless of whether or not they charge a fee over and above the agreed-upon real estate commission.
If a house listed by the servicer in the previous month is a short sale. Do they need to include the disclosure forms?
As the rule went into effect from January 1, 2011, so if the servicers are providing any advice to the seller regarding their short sale and/or communicating and negotiating a short sale pre-approval or short sale purchase, then offer disclosure is required.
If the house is already under contract, and has not closed yet, does the servicer still need to go back and provide the disclosures now?
If the sale has already closed, then they do not need to make the disclosure. But they need to make the appropriate disclosure(s) all the time.
Apart from providing the disclosure, what else needs to be done?
Along with providing the appropriate disclosure statement(s), the servicers must keep a copy of all contracts between the provider and the consumer, copies of all written communication like emails and text messages between the consumer and MARS provider before entering into the agreement for MARS services, copies of all document or recordings or any other commercial communications for MARS services, all consumer files containing contact information and descriptions of MARS services needs to be kept for 24 months from the date of creation of the record.
Even if the servicer just contacted the bank for helping facilitate a deal for short sale property, they would need to provide the appropriate disclosure, even if they represent the buyer.
The penalties for non-compliance
In case of violation, fines of $11,000 per occurrence and $11,000 per day may be incurred, so it is important that a servicer understands the new regulations and is compliant.
At times consumers may sue the MARS services provider (broker/agent) if their damages exceed $50,000.
Conclusion
FTC which is the consumer protection agency in the U.S. had issued a rule to restrain unfair and deceptive practices associated with mortgages with their Mortgage assistance relief services, which is called as MARS rule.
A compliance guide is issued by FTC for businesses which can be downloaded from the FTC website.
