The federal government continues to look for new routes to protect consumers in the recovering housing market, as borrowers have experienced difficulty in obtaining loan modifications, have been victims of fraudulent documents and have been taken advantage of by mortgage relief services charging exorbitant fees with little result. Most recently, the Federal Trade Commission issued the Mortgage Assistance Relief Services (MARS) Rule as a means of protecting borrowers, effectively banning mortgage foreclosure rescue services from collecting fees until homeowners have an acceptable written offer from their lender and homeowners accept the terms of the modification.
Here at P&P Law, we have argued against the use of mortgage relief servicers from the start. If you are looking to obtain a loan modification on your home due to financial difficulty, it is always best to seek the advice of an attorney experienced in the real estate fields. The new MARS Rule underlines the danger of working with a mortgage relief service company, severely restricting their ability to practice and charge fees. Recent scandals and difficulties have led the federal government to tighten up on these regulations to look out for the average homeowner.
The new rules dictate that there cannot be an advance fee charged by mortgage relief companies, unless the mortgage relief servicer is an attorney. The reason for this is that only attorneys can take a look at one's situation and advise homeowners on what a client's best legal option is, whether that be bankruptcy, loan modification, cash-for-keys, etc. This means that the mortgage relief service has to provide the borrower with a written agreement explaining the new terms of the mortgage payment which the borrower finds acceptable before they can charge any fee at all. This is expected to have a significant impact on the current mortgage relief industry, as it changes the entire form of payment.
In addition to not collecting fees until an agreement is produced, the new FTC rules also ensure that all servicers provide full disclosure of the loan modification application process to those borrowers looking to modify the terms of their loan. The MARS Rule mandates that such service companies disclose that they are 1) not associated with the government and have not been approved by the government or the borrower's lender, 2) that the lender might not agree to change the terms of the borrower's loan and 3) if they tell a borrower to stop paying their mortgage, they must also emphasize that they could lose their home or at least damage their credit score. This aspect of the rule highlights the false promises historically made by mortgage companies and looks to stop them in the future.
On top of these requirements, the mortgage relief service must also make the consumer aware that they may stop using the company's services at any point in time and have the option of accepting or rejecting any loan modification offer that comes from their lender. Companies must also explain that if the borrower rejects the offer made by the lender, the client does not have to pay the fee to the servicer. The fee must also be disclosed from the very beginning of the loan modification process, which it is often a discrepancy associated with such mortgage relief service companies.
One of the most extensive factors of the new FTC rules is the list of prohibited claims a mortgage relief service can make to the borrower. Stemming from past difficulties and mishaps, the prohibited claims include: the likelihood of the borrower getting the desired results, the relief service's affiliation with the government or other private entities, the borrower's payment and other mortgage obligations, the refund and cancellation policies of the relief service, whether the company has carried out the service it promised to the borrower, whether the company will provide legal representation to consumers in the event that they face a legal problem with the lending company, the availability or cost of any alternative to paid mortgage assistance services, the amount a borrower can expect to save by using such services and finally, the cost of the services in the first place.
The rule also bans mortgage relief services from telling borrowers that they are not allowed to communicate with their lenders once the relief agency steps in. Though mortgage assistance services will typically take over the communication with a lender to maintain consistency, the borrower should not be banned from speaking with their lender as well during this time period.
Attorneys are exempt from this rule, which means that law offices are allowed to assist with loan modifications without restriction. The only requirements to verify that an attorney is a legitimate source of assistance in such situations are that they are engaged in practicing law, are licensed to practice in the state where the borrower lives and comply with state laws and regulations regarding attorney conduct. Additionally, for the attorney to be exempt from the advance-fee ban, they must place any payment in a client trust account and then abide by all state laws and regulations that deal with such accounts, including abiding with their ethics rule violation regulations.
All aspects of this new rule go into effect on December 29, 2010, except for the advance-fee ban, which will not be enforced until January 31, 2011, so as to prepare mortgage servicers who currently charge advance fees for the shift in law. This means that it is still a risk to work with mortgage relief servicers, as they are not yet fully under the legal provisions set up by the FTC. This new rule only applies to those organizations which fall under the FTC's jurisdiction, meaning it excludes the actions of banks, savings and loans, federal credit unions, common carriers, and insurance entities.
What this means to the average homeowner is that they must still be careful and thorough when selecting someone to assist them with their mortgage payments, especially if one chooses to not hire an attorney. An experienced real estate attorney can provide multiple options for homeowners and advise which of these options may have the best possibility of success. As the new rules point out with which P&P agrees, it is always safest to stay with an attorney when requiring assistance obtaining a loan modification. Our extensive experience handling foreclosure prevention methods, especially loan modifications, enables us to know the most useful method for dealing with your lender and ensures that we do so in a legal, effective manner. As always, we advise that you seek an attorney's advice when applying for a loan modification on your property. With the additional restrictions on mortgage relief servicers made by the FTC recently, working with such companies is more of a gamble than ever before.
