Preforeclosure Investors: Beware Of The MARS Rule
MARS (Mortgage Assistance Relief Services) is a ruling that residential real estate professionals (investors and Realtors), especially preforeclosure investors, need to know about. It was issued by the Federal Trade Commission (FTC) to protect consumers and took effect on January 31, 2011. Whether we are Realtors or not, we must understand and obey the MARS Rule whenever we approach homeowners in distress or else we risk heavy fines being levied against us.
If we violate MARS, we could face fines of $11,000 per occurrence and $11,000 for each day that we are not in compliance.
Got your attention now? Good! Let’s continue…
MARS was mainly meant to prevent scammers from taking up-front fees to negotiate with homeowners’ mortgage lenders to get loan modifications, short sales, or other relief from foreclosure. These scumbags often claim to be affiliated with a government agency or government housing assistance programs and make ethical investors look really bad. I had personal experience with this when I was working a short sale on a house here in Aiken (my hometown in South Carolina). I was in the middle of short sale negotiations back in 2006 (long BEFORE these MARS regulations came out) when I got a call from one of the homeowners to tell me “thank you” for what I’d done so far but that I was no longer needed since someone had solved her and her husband’s problem by stopping the foreclosure process on their home. Of course, I asked how they resolved the situation with their lender and she told me, “Some nice man from Augusta (Georgia) told us to send him $600 and he would help us stop the foreclosure.”
Upon further inquiry, I found out that this “nice man” had them drive to the Federal Courthouse in Columbia, South Carolina and declare Chapter 13 bankruptcy. Let me see, they sent this talking anal plug a $600 check and he can’t even be bothered to get his lazy a$$ out the door to visit them but just tells them how to declare bankruptcy. I got on the phone with this jackass and told him that I would have the Georgia attorney general on him like a bad rash if he didn’t immediately send back their $600. From his nervous voice tone and him immediately caving in to overnight the money back to the homeowners, I could tell he was new at this and had probably just purchased a home study course from one of the “gurus” who were peddling their junk with visions of how “you, too, can make tons of money doing loan mods!” It is because of scumbags like them that I advocate having something like the MARS Rule in effect.
Getting back to the issue at hand, some of the work that we, as investors, do to get good deals requires that we negotiate with homeowners and their lenders to do loan modifications or short sales. Accordingly, we must obey the MARS rules. The easiest way to comply with the regulations is to know what we can and can’t do in negotiations. Even if we outsource our short sale or loan mod negotiations to a third-party company, we fall under FTC jurisdiction regarding MARS and must obey these rules. The main thing to know is that we can’t charge up-front fees.
Now be sure to have your real estate attorneys verify these but here’s the breakdown of the rules as given by the FTC website:
Advance Fee Ban
We may not collect any fees until after we have provided homeowners with a written offer from their lender or servicer that they decide is acceptable and a written document from the lender or servicer describing the key changes to the mortgage that would result if they accept the offer. We must also remind consumers of their right to reject the offer without any charge.
The easiest thing to do is to just not charge advance fees. After all, we don’t want the peanuts that we may get by charging advance fees, like the measly $600 charged by the scumbag in my real-life example above, but we want to earn our pay by ONLY getting paid upon satisfactory resolution of the problem, i.e., by buying the property and then reselling it or holding it as a rental.
Disclosures Required By MARS
In all of our communications, we must disclose the following in 12-point font or ½ the size of the largest letter advertising the name of the company providing the MARS disclosures, whichever is bigger:
- We are not associated with the government or endorsed by the government;
- The lender can refuse to modify the homeowner’s loan;
- If a homeowner stops paying their mortgage, they could lose their home and damage their credit;
- The homeowner can walk away from the deal at any time before accepting the lender’s offer and they are not required to pay a negotiation fee (if you happen to be someone who charges these fees, that is) if they do kill the deal;
- What the fees are for negotiating the terms of the short sale or loan modification (if you happen to be someone who charges these fees, that is).
Prohibited by MARS
The MARS Rule prohibits us from making any false or misleading claims about our services, including claims about:
- The likelihood of homeowners getting the results they want;
- Any affiliation with government or private entities (unless you really are affiliated with any of them, of course);
- The homeowner’s payment and other mortgage obligations;
- Our refund and cancellation policies;
- Whether or not we have performed the services promised;
- Whether or not we 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 our services; or
- The cost of our services.
NEVER tell our prospective homeowner customers to stop communicating with their lenders or servicers without letting them know that the lender can totally kick them to the curb, take their house, and damage their credit or else we will be in violation of MARS. Also, if we claim that we can help a homeowner, the FTC says we have to have “reliable evidence” of our claims about the benefits, performance or effectiveness of how we negotiate.
Attorneys may be exempt from the MARS Rule (gee, I wonder who made this Rule to begin with?). Realtors tried to get exemption from it but this idea was rejected so Realtors must now obey MARS just like us common folk. Other entities exempt from the MARS Rule include banks, savings and loans, federal credit unions, common carriers, and entities engaged in the business of insurance.
For creative financing, there are especially two scenarios where the MARS rules will most likely apply: “subject to” and “carry back” loans. In both cases, we are either taking over financing or making a loan modification so we must obey MARS. The final FTC ruling for MARS can be seen at:
http://www.ftc.gov/opa/2010/11/mars.shtm.
Real estate can be a fun business…as long as we can do it without having to wear handcuffs, leg irons, and orange jumpsuits. So let’s just be ethical, treat homeowners with respect, and obey the laws.
Here are a few related sites that may give you more information relevant to your needs. Thanks for visiting Aesir Group commercial finance.
Affordable Home Calculator from CNNMoney
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Due diligence | Define Due diligence at Dictionary.com
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