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FTC Announces New Advanced Fee Ban for Mortgage Assistance Relief Services

Homeowners will be protected by a new Federal Trade Commission rule that bans providers of mortgage foreclosure rescue and loan modification services from collecting fees until homeowners have a written offer from their lender or servicer that they decide is acceptable.

“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,” FTC Chairman Jon Leibowitz said. “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.”

The FTC is issuing the Mortgage Assistance Relief Services (MARS) Rule to protect distressed homeowners from mortgage relief scams that have sprung up during the mortgage crisis. Bogus operations falsely claim that, for a fee, they will negotiate with the consumer’s mortgage lender or servicer to obtain a loan modification, a short sale, or other relief from foreclosure. Many of these operations pretend to be affiliated with the government and government housing assistance programs. The FTC has brought more than 30 cases against operations like these, and state and federal law enforcement partners have brought hundreds more.

Advance fee ban

The most significant consumer protection under the FTC’s new rule is the advance fee ban. Under this provision, mortgage relief companies may not collect any fees until they have provided consumers with a written offer from their lender or servicer that the consumer decides is acceptable, and a written document from the lender or servicer describing the key changes to the mortgage that would result if the consumer accepts the offer. The companies also must remind consumers of their right to reject the offer without any charge.

Disclosures

The Rule requires mortgage relief companies to disclose key information to consumers to protect them from being misled and to help them make better informed purchasing decisions. In their advertising and in communications directed at individual consumers (such as telemarketing calls), the companies must disclose that:

  • they are not associated with the government, and their services have not been approved by the government or the consumer’s lender;
  • the lender may not agree to change the consumer’s loan; and
  • if companies tell consumers to stop paying their mortgage, they must also tell them that they could lose their home and damage their credit rating.

Companies also must explain in their communications to consumers that they can stop doing business with the company at any time, can accept or reject any offer the company obtains from the lender or servicer, and, if they reject the offer, they don’t have to pay the company’s fee. The companies also must disclose the amount of the fee.

Prohibited claims

The MARS Rule prohibits mortgage relief companies from making any false or misleading claims about their services, including claims about:

  • 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.

In addition, the rule bars mortgage relief companies from telling consumers to stop communicating with their lenders or servicers. Companies also must have reliable evidence to back up any claims they make about the benefits, performance, or effectiveness of the services they provide.

Attorney exemption

Attorneys are generally exempt from the rule if they meet three conditions:

  1. they are engaged in the practice of law,
  2. they are licensed in the state where the consumer or the dwelling is located,
  3. and they are complying with state laws and regulations governing attorney conduct related to the rule.

To be exempt from the advance fee ban, attorneys must meet a fourth requirement – they must place any fees they collect in a client trust account and abide by state laws and regulations covering such accounts.

All provisions of the rule except the advance-fee ban will become effective December 29, 2010. The advance-fee ban provisions will become effective January 31, 2011.

The full and final rule can be found here.

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About Steve Rhode

Steve Rhode
Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.
  • Mortgage-Mod-Monster.com

    Between the Foreclosuregate scandal being taken up by the 50 state’s Attorney’s General and the new MARS Rule by the FTC, it is apparent that mortgage negotiations and a court foreclosure defense must be a do-it-yourself project.

    Fortunately, a tool exists to do just that. The REST Report uses bank software to calculate an unbiased Net Present Value and recommend mortgage modification or short sale. The new version will incorporate the guidelines for the new Principal Reduction Alternative of HAMP. By submitting the REST Report along with other supporting documents, the homeowner is assured of good faith negotiations by their mortgage investor. The issue of MERS is moot because a human must respond in court to a foreclosure action. The REST Report has been welcomed by every single foreclosure judge who has ruled on it.

    Click for Information on the Do it Yourself Mortgage Modification

  • Damon Day

    Hey Joed, thanks for your thoughts :-)

  • Joed

    bla bla bla

  • Damon Day

    Good first step, but I predict everyone just goes for the attorney exemption and continues with the BS. That is until the FTC nails some large players and hopefully get some attorneys disbarred that are actually scamming consumers. Then the reputable attorneys will start rejecting the liability that these sales outfits are bringing to them in mass.

  • http://DamonDay.com Damon Day

    Good first step, but I predict everyone just goes for the attorney exemption and continues with the BS. That is until the FTC nails some large players and hopefully get some attorneys disbarred that are actually scamming consumers. Then the reputable attorneys will start rejecting the liability that these sales outfits are bringing to them in mass.

    • Joed

      bla bla bla

      • http://DamonDay.com Damon Day

        Hey Joed, thanks for your thoughts :-)

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