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New FTC Requirements for Short Sales

REALTORS® who negotiate short sales with lenders and those who promote their services as a way to help consumers avoid foreclosure must generally comply with new disclosure and other requirements under the federal Mortgage Assistance Relief Services (MARS) rules, according to the NATIONAL ASSOCIATION OF REALTORS® (NAR).  These new rules, however, do not apply to real estate agents who limit their short sale services to providing customary assistance to consumers in selling or buying short sales, such as listing homes for sale, showing homes, and finding desirable homes for consumers, and who do not negotiate with lenders and do not promote their services as a way to help consumers avoid foreclosure.  C.A.R. is in the process of expeditiously preparing standard forms for REALTORS® to use to comply with MARS.
On February 23, 2011, NAR announced that the Federal Trade Commission (FTC) staff’s position is that real estate agents who negotiate short sales with lenders, along with those who promote their services as a way to help consumers avoid foreclosure, must generally comply with MARS (which came into full effect on January 31, 2011).  Other mortgage assistance relief services offered to a consumer in exchange for consideration that are generally regulated under MARS include, without limitation, negotiating, obtaining, or arranging a loan modification, deed-in-lieu of foreclosure, loan forbearance, or extension to cure a default.
Under the FTC staff’s position, real estate agents who fall within the scope of MARS must generally provide certain disclosures, refrain from claiming an advance fee, refrain from engaging in certain deceptive acts, retain records for 24 months, and monitor their independent contractors and employees as specified.  More specifically, real estate agents who negotiate short sales with lenders and those who promote their services as a way to help consumers avoid foreclosure must comply with the MARS rules, including, but not limited to, the following: 

Disclosure Requirements:

  • Disclose on promotional materials for general commercial communications that the company is not associated with the government, and that a lender may not agree to change a loan.
  • Disclose, before a specific consumer agrees to use an agent’s services, as above, and that: (1) the consumer may stop doing business with the brokerage at any time; (2) the consumer must pay the broker’s total compensation as specified if the consumer accepts the lender’s offer; and (3) the consumer does not have to pay the brokerage if the consumer rejects the lender’s offer.
  • Disclose, when furnishing the lender’s offer of mortgage assistance relief to a consumer, items (2) and (3) directly above, and provide a notice from the lender of the material differences between the lender’s offer and the consumer’s current mortgage loan.

Prohibited Acts:

  • Refrain from requesting or receiving payment until the consumer enters into a written agreement with the lender (California law further restricts advance fees).
  • Refrain from engaging in certain deceptive acts, such as representing that a consumer should not contact the lender, misrepresenting the likelihood of obtaining a short sale, misrepresenting the amount of time it will take to accomplish a service, misrepresenting the consumer’s obligation to make loan payments, or representing the benefits of any MARS service unless such representation is based upon competent and reliable evidence substantiating its truthfulness.

Record Retention and Monitoring Duties:

  • Keep for 24 months copies of records, including, but not limited to, all consumer files, contracts, MARS disclosures, written communications, commercial communications, marketing materials, websites, weblogs, sales scripts, and training materials (California law further regulates record retention).
  • Take reasonable steps to monitor that their independent contractors and employees comply with these rules, such as monitoring communications directed at specific consumers, establishing a procedure for receiving and responding to consumer complaints, investigating promptly and fully each consumer complaint received, and maintaining records to show compliance with the monitoring requirements.

Finally, MARS also prohibits anyone (not just MARS providers) from providing substantial assistance or support to a MARS provider, when that person knows or consciously avoids knowing that the provider is engaged in any act or practice that violates MARS.
The MARS rules are fully set forth at Part 322 of Title 16 of the Code of Federal Regulations.  The FTC also offers a business compliance guide called “The Mortgage Assistance Relief Services Rule”.  For NAR’s guidelines on MARS, go to “New FTC Rule Requires Short Sale Disclosures”.


Short Sales

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1205 South Fir Avenue

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Ruth Biafora Broker/Owner 818-601-5765

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